G.R. No.
193969-193970 stipulations: a) the project will commence in seven days from the
KA KUEN CHUA, doing business under the name and style KA
KUEN CHUA ARCHITECTURAL, Petitioner
vs.
COLORITE MARKETING CORPORATION, Respondent
x-----------------------x
G.R. Nos. 194027-194028
COLORITE MARKETING CORPORATION, Petitioner,
vs.
KA KUEN CHUA, doing business under the name and style KA
KUEN CHUA ARCHITECTURAL, Respondent.
DECISION
REYES, J.:
These are consolidated petitions for review on certiorari assailing the
Decision1 dated July 28, 2009 and Resolution2dated October 4, 2010
of the Court of Appeals (CA) in CA-G.R. SP Nos. 103892 and
103899, which affirmed with modifications the Final Award3 of the
Construction Industry Arbitration Commission (CIAC) dated May 27,
2008 in CIAC Case No. 32-2007.
The Facts
On November 15, 2003, Colorite Marketing Corporation (Colorite)
and Architect Ka Kuen Tan Chua (Chua), doing business under the
name and style "Ka Kuen Chua Architectural" (KKCA), signed a
construction contract whereby the latter undertook to build a four-
storey residential/commercial building for the former on a parcel of
land located at St. Paul Road, comer Estrella Avenue, Makati City. 4
The parties agreed to a full contract price of Thirty-Three Million
Pesos (Php 33,000,000.00), subject, among others, to the following
time KKCA received a notice to proceed from Colorite, and will be
completed within 365 days reckoned from the seventh day after the
release of the down payment;5 b) in the event that the project is not
completed on time, the amount of Php 10,000.00 for each calendar
day of delay shall be paid by KKCA to Colorite;6 c) only a maximum
of 20% of slippage, or 73 calendar days of delay, is allowed, and
Colorite has the right to terminate the contract if the delay exceeded
the maximum number of days allowed;7 and d) Colorite has the right
to take over and complete the construction of the project, and all
costs incurred thereby will be deducted from the amount due to
KKCA.8
In addition to the main construction contract, the parties also agreed
on complementary provisions embodied in Addendum #019 and
Addendum #02.10
Thereafter, Colorite issued the Notice to Proceed, and paid the
agreed down payment in the amount of Php 6,600,000.00
corresponding to 20% of the contract price.11
To undertake the excavation work, Colorite engaged the services of
WE Construction Company (WCC).12 On January 10, 2004, full-blast
excavation work began.13 However, on January 17, 2004, the
excavation resulted in erosion, which caused damage to the adjacent
property owned by the Hontiveros family. This prompted the latter to
file a formal complaint before the City Government of Makati. In view
of this development, a Hold Order was issued by the Building
Officials of Makati City dated January 22, 2004 directing KKCA
to stop immediately all its excavation activities in the premises, and
to immediately restore the eroded portion of the adjacent
property. The incident resulted in the delay of the project because
the Hontiveros family refused to sign a waiver that was required for
the lifting of the Hold Order unless their property was restored.14
The restoration of the Hontiveros property was completed in October
2005.15 Notwithstanding this development, the Hontiveros family's
quitclaim remained forthcoming. As a consequence, the Hold Order
remained effective and the construction suspended.
After 878 days of delay, Colorite demanded from KKCA to pay
damages pursuant to the contract. KKCA refused contending that:
(a) the agreed completion period was suspended when the City
Government of Makati issued the Hold Order; and (b) Colorite failed
to pay the costs of soil protection, as well as the 70% of the
restoration cost of the Hontiveros property, which allegedly formed
part of the agreement.16
The dispute impelled Colorite to file the instant claim before the
CIAC.17 According to Colorite, reckoning from the date the down
payment was made less the seven-day interval before KKCA
commenced its work, and the 73 calendar days allowed slippage, the
project should have been completed on March 5, 2005.18 Hence,
from March 6, 2005 up to the commencement of the action on July
31, 2007, the project was already delayed for 878 days. This renders
KKCA liable to Colorite for payment of liquidated damages in the
amount of Eight Million, Seven Hundred Eighty Thousand Pesos
(Php 8, 780,000.00), plus Ten Thousand Pesos (Php 10,000.00) per
additional day of delay until the project is completed. 19
In addition to its claim for liquidated damages, Colorite also asserted
that upon its completion, the building will have a total leasable area
of 1,320.12 square meters. Computed at a minimum monthly rental
of Php 350.00 per sq m, the building should generate a total of Php
460,189.00 lease income per month.20
Accordingly, Colorite prayed for the following: (a) liquidated damages
in the amount of Php 8,780,000.00; (b) loss of rental earnings in the
amount of Php 13,345,481.00; (c) Php 500,000.00 attorney's fees;
and, (d) litigation expenses in the amount of Php 300,000.00.21
In his Answer,22 Chua asserted the following:
a) He is capable[,] competent and duly licensed to undertake the
project in accordance with the plans and specifications but [his
liability cannot] extend to the excavation works[,] which were not
undertaken by KKCA but by a subcontractor;
b) His obligation to complete the construction of [Colorite's]
residential/commercial building in 365 days reckoned from the
seventh day after release of the downpayment was suspended by
the stoppage of the excavation by the Makati City Building Officer[,]
and by [Colorite's] failure to pay the cost of soil protection and the
balance of its 70% share in the costs of restoration work of the
Hontiveros property[,] which not only delayed the construction and
increased its costs but rendered the performance of the contract
extremely difficult;
c) On January 10, 2004, full blast excavation work in the construction
project was beg[u]n by [WCC]. On January 17, 2004, substantial soil
erosion occurred and caused damages to the adjacent Hontiveros
property and [on] January 27, 2004, the Makati City Building Office
ordered the suspension of the excavation which lasted up to the
present despite [diligent] effort on the part of [KKCA] to lift the
suspension order and repair the damage to the Hontiveros property.
On February 28, 2004[,] another erosion occurred causing further
damage to the Hontiveros property;
d) [Colorite] agreed to share 70% in the restoration cost of the
Hontiveros property [but] the remaining 30% was [KKCA's] share; as
proof of [Colorite's] commitment to the new agreement[,] it paid
Php150,000.00 for the boring test, but [Colorite] reneged on its
undertaking to share in the restoration costs of the Hontiveros
property thereby compelling [KKCA] to advance [the] costs[,] which
claimant was duly notified [of] and billed[.] [H]owever, the latter
refused further payment and instead offered the amount of
Php800,000.00 as its donation not by way of sharing;
e) [KKCA] denied the claim of [Colorite] for rental income loss in the
sum of Phpl3,345,481.00 as without basis and purely speculative;
[KKCA] further denied [Colorite's] claim for liquidated damages in the
sum of Php8,780,000.00 because the period of construction was
deemed suspended with the suspension of the excavation by
[Colorite's] failure to pay its share in the soil protection and
restoration costs of the Hontiveros property; [and]
f) On its counterclaims[,] [KKCA] claimed for soil protection installed
in the sum of Phpl,324,340.64, soil protection for the unexcavated
portion in the sum of Php3,583,872.00, design fee in the sum of
Php2,310,000.00, ECC permit in the sum of Php50,000.00, balance
of 70% share in the restoration of Hontiveros property in the sum of
Phpl,777,011.00; cost of maintaining the project site in the sum of
Php2,047,269.00, moral damages for Php500,000.00, exemplary
damages for Php500,000.00 and attorney's fees for
Php500,000.00.23
Ruling of the CIAC
On May 27, 2008, the CIAC rendered its Final Award. 24 It ruled as
follows:
On the basis of the evidence submitted by the parties the Arbitral
Tribunal finds and so holds:
[COLORITE]:
1. [Colorite] is entitled to its claim for liquidated
damages but only for 50% thereof (Php8,
780,000.00) or for the sum of Php4,390,000.00
because it is equally responsible for the delay; [and]
2. [Colorite] is not entitled to recover its other claims
for loss of rental earnings, attorney's fees and
litigation expenses.
[KKCA]:
1. [KKCA] is entitled to his claim for soil protection
works but only for the sum of Php552,840.60 but
cannot recover his claim for soil protection works for
the unexcavated portion;
2. [KKCA] is entitled to recover [its] claim for design
fee in the sum of Php2,310,000.00;
3. [KKCA] is not entitled to [its] claim for recovery of
ECC permit fee inasmuch as there is evidence [that]
it was paid by [Colorite];
4. [KKCA] is entitled to [its] claim for restoration
costs but only for the sum of Php523,579.20, which
is 50% of [its] proven total claim of Phpl,047,157.40;
5. [KKCA] is entitled to [its] claim for recovery of the
costs of maintaining the project site but only for the
sum of Php313,684.32[,] which is 50% of [its] total
proven costs of Php627,368.64, inasmuch as the
costs are part of the restoration costs of the
Hontiveros property;
6. [KKCA] is not entitled to [its] claim for moral and
exemplary damages and for attorney's fees; [and]
7. The parties shall bear their respective arbitration
costs.25
Not satisfied with the CIAC award, both parties filed their respective
petitions for review before the CA.
Ruling of the CA
On July 28, 2009, the CA promulgated the assailed
Decision26 affirming with modifications the Final Award of CIAC.
The fallo of the CA decision reads:
WHEREFORE, in view of the foregoing, the instant PETITION is
partially GRANTED. The assailed Final Award dated May 27, 2008 of
the [CIAC] in CIAC Case No. 32-2007
is AFFIRMED with MODIFICATIONS.
Accordingly, the assailed Award 1s hereby AFFIRMED with respect
to the following:
FOR COLORITE:
1. Colorite is entitled to its claim for liquidated
damages but only for 50% of Php8,780,000.00 or for
the sum of Php4,390,000.00.
2. Colorite is not entitled to loss of rental earnings,
attorney's fees and litigation/arbitration expenses.
FOR KKCA:
1. KKCA is entitled to its claim for soil protection
works but only in the amount of Php552,840.60.
2. KKCA is entitled to its claim for design fee in the
amount of Php2,310,000.00.
3. KKCA is not entitled to its claim for increase in the
price of construction materials, moral and exemplary
damages, attorney's fees and litigation/arbitration
costs.
In addition, the Final Award is MODIFIED with respect to the
following:
FOR COLORITE:
1. Colorite is hereby ordered to pay KKCA the
amount of Php550,000.00 (Php700,000.00 less P
150,000.00 which it· already advanced) as part of its
share in the restoration costs of the Hontiveros
property;
2. Colorite is ordered to share 50% in the total
maintenance costs (Php2,047,268.75) or a total
amount of Phpl,023,634.30.
3. Colorite is ordered to reimburse KKCA the amount
paid by the latter for the ECC permit in the amount of
Php50,000.00.
4. In satisfying Colorite's obligations, the necessary
deductions should be made from its down payment
of Php6,600,000.00 as may be appropriate.
FOR KKCA:
1. KKCA is directed to finish the subject construction
project subject to the necessary adjustments in the
contract price;
2. KKCA is enjoined to secure the quitclaim from the
Hontiveros family and the lift order from the city
government of Makati in order for the construction
project to proceed.
SO ORDERED.27
According to the CA, the construction contract shows that Colorite
was indeed liable for the payment of the design fee, it being not
really included in the summary of the bid proposal, which itemized all
the works that KKCA proposed to perform.28 On the other hand, soil
protection and excavation works were deemed included in the
KKCA's scope of work; hence, expenses for said items should be
deemed as necessarily contained in the agreed contract cost and no
separate computation and payment for the same is
necessary.29 Nevertheless, the CA adjudged that KKCA is entitled to
its claim for soil protection works in the amount proved by the
evidence presented, and the same shall be deducted from the total
down payment already made.30
As further found by the CA, the original construction contract
categorically states that Colorite shall be held free from any liability
arising from damages to third parties; thereupon, only KKCA should
be made to bear the costs of the restoration of the Hontiveros
property.31 However, the CA maintained that said stipulation was
deemed superseded when the parties agreed that Colorite will share c) ruling that Colorite is liable to share in the
in the cost of restoration of the Hontiveros property (restoration restoration costs of the Hontiveros property and
agreement). Due to this fact, and because of Colorite's contributory maintenance costs of the project;
negligence owing to its failure to deliver the share it promised
amounting to Php700,000.00, it is partly to blame for the protracted d) ruling that Colorite is liable to pay the costs of
delay of the project.32Accordingly, Colorite was adjudged as only design fee and ECC permit; and
entitled to 50% of the liquidated damages it is claiming or
Php4,390,000.00.33 For the same reason, Colorite was also held e) ruling that KKCA is entitled to its claim for soil
liable to 50% of the total maintenance cost amounting to protection works.40
Php2,047,268.75.34
For its part, KKCA asserts that the CA erred in:
The CA ruled that the parties were both at fault, but were not in bad
faith. Consequently, neither party is entitled to moral damages,
exemplary damages, arbitration costs and attorney's fees.35 a) finding that excavation and soil protection works
are included in KKCA's responsibilities and should
be deemed included in the Contractor's Scope of
Anent the Environment Compliance Certificate (ECC) Fee, the CA
Work indicated in the contract;
ruled that Colorite should reimburse KKCA, because payment for the
same was advanced by the latter in the name of the former.36
b) directing KKCA to finish the subject construction
project;
Dissatisfied, both parties filed their respective motions for
reconsideration. However, both motions were denied by the CA per
Resolution37 dated October 4, 2010. c) ruling that KKCA is enjoined to secure the
quitclaim from the Hontiveros family, and the lift
order from the City Government of Makati so that the
The parties filed before the Court their respective petitions 38 under
construction project can proceed;
Rule 45 of the Rules of Court. Since the instant petitions assail the
same CA decision, both petitions were consolidated per
Resolution39 dated December 15, 2010. d) awarding Colorite liquidated damages m the
amount of Php 4,390,000.00;
According to Colorite, the CA erred in:
e) ruling that Colorite is liable only for the amount of
Php 700,000.00 and not 70o/o of the costs for the
a) not awarding Colorite full liquidated damages and restoration of the Hontiveros property;
m ordering the adjustment of the contract price;
f) ruling that KKCA was only able to prove the
b) ruling that Colorite is not entitled to loss of rentals
amount of Php 552,840.64 as cost for soil protection
and attorney's fees;
works;

g) ruling that Colorite is liable only for 50% of the

cost of maintaining the project site; and
 h) not holding Colorite liable for moral damages,
exemplary damages, attorney's fees, arbitration
fees, and other costs of suit.41
Ruling of the Court
As a general rule, a petition for review on certiorari under Rule 45 is
limited to questions of law. However, this rule admits of certain
exceptions; among them is when the findings of the CA conflict with
those of the court a quo,42 as in this case. Thus, a review of the
evidence on record is warranted.
The instant controversy arose from the delay in the completion of the
construction project.
According to the CIAC, the issuance of the Hold Order was the
immediate cause of the delay.43 However, there is no denying that
said Hold Order would not have been issued if not for the complaint
instituted by the Hontiveros family after their property was damaged
by the erosion. Thus, it is material to determine what caused the
erosion, and who should be blamed therefore.
The records further show that the restoration of the Hontiveros
property was already completed in October 2005. In spite of this, the
construction remained suspended. The instant case was instituted on
July 31, 2007, or 24 months from the time the Hontiveros property
was restored.
There are two principal questions to be resolved herein, to wit: (a)
what factor or factors contributed to the project's prolonged delay?;
and (b) what are the parties' respective participation, if any, in the
delay?
Moreover, the resolution of this case also rests upon an examination
of the parties' contractual relationship embodied in the main
construction contract, Addendum #01 and Addendum #02, and the
alleged agreement entered into by the parties where Colorite will
contribute Php 700,000.00 in the restoration of the Hontiveros
property.
KKCA is at fault for the erosion,
which damaged the Hontiveros
property
The CIAC found that the parties are both to blame for the erosion,
which damaged the Hontiveros property; hence, they should equally
share the restoration cost of the same and bear the consequences of
the project's delay.44
According to the CIAC:
The actual cause of the delay is the failure by the parties to realize
and admit that they are both to blame for the erosion the excavation
had caused to the adjacent Hontiveros property and therefore are to
share equally the expenses of restoring said property.
The excavation was done by [WCC] that was engaged by [Colorite]
and it was done without the correct and adequate soil protection for
which reason it caused erosion to the adjacent Hontiveros property.
[Colorite] assumed responsibility for the defective excavation of its
contractor when it did not hold [WCC] accountable and was present
in the various meetings with [KKCA], the Hontiveros family[,] and
Makati Building Official regarding the restoration of the Hontiveros
property and it is estopped to deny it. Estoppel precludes one from
denying or asserting by his own deed or representative any contrary
to that established as the truth in the legal contemplation (R-11
Builders Inc. v. CIAC G.R. No. 152545 & 165687, Nov. 15, 2007).
But [KKCA] is equally to blame because erosion occurred on January
20, 200745 (sic) after full blast excavation started on January 17,
200746 (sic) after excavation was added to its scope of work on
December 15, 2003 (Exh. R-11), which placed under its supervision
the excavation works of the sub-contractor. x x x.47 (Emphasis in the
original)
On the basis of estoppel, the CIAC concluded that Colorite was also
at fault considering that it attended the various meetings regarding
the restoration of the Hontiveros property; and it did not attribute any
fault on WCC. To this, the Court cannot agree.
Colorite was present in the various meetings with KKCA, the
Hontiveros family, and Makati building official regarding the
restoration of the Hontiveros property. However, such fact, by itself,
should not be taken against Colorite. As the owner of a project
involving a substantial amount of financial investment, it is but normal
for Colorite to show extraordinary interest in the resolution of an
issue that posed a problem to the project's completion. Colorite's
mere presence in the meetings does not amount to conduct and/or
representation that it has, in fact, assumed an obligation. The
principle of estoppel was, thus, erroneously applied.
Secondly, the CIAC maintained that WCC was at fault for the
defective excavation. According to the CIAC:
In the construction industry[,] soil protection is part of excavation
works inasmuch as it is necessary in order to prevent erosion. The
sub-contractor, [WCC], the company contracted by [Colorite] to do
the excavation work for the basement and foundation of the building
before the contract and Addendum #01 were signed by the parties, is
duty bound to provide correct and adequate soil protection to avoid
erosion. [Colorite] failed to establish that its sub-contractor did soil
protection work and if it did[,] it was [not] adequate or properly done.
On the contrary, what happened was that after its initial full blast
excavation works[,] the wall of the excavated basement adjacent [to]
the Hontiveros property collapsed.48
The CIAC concluded that by not holding WCC accountable, Colorite,
thereby, condoned its actions and assumed its liabilities. As such,
WCC's liability in the resulting damage to the Hontiveros property
should be borne by Colorite. To this, the Court once again disagrees.
For one, WCC was not an employee of eolorite within the
contemplation of Article 2180,49 in relation to Article 2176,50 of the
Civil Code as to make the latter liable for the damages caused by the
former. Further, the fact that it was Colorite, which contracted wee to
do the excavation works, is of no moment. It is beyond dispute that
the parties expressly agreed that all excavation works are included in
KKCA's scope of work, as the general contractor of the project.
Paragraph 21 of Addendum #01 is clear on this point. It reads:
21. All excavation works as required for, should be included on the
scope of works of the Contractor. Disregard Pre-Bid Minutes Item II-
G at Page 3.
NOTE: Corresponding cost to be paid to the contractor based on
sub-contractor's cost.51 (Emphasis ours)
In view of the said stipulation, WCC was placed under KKCA's
supervision and control.
Notably, in its Answer to Colorite's Complaint before the CIAC,
KKCA never asserted that WCC should be blamed for the erosion.
Although KKCA intimated that substantial soil erosion occurred on
January 17, 2004 after WCC commenced with the full blast
excavation on January 10, 2004,52 the said statement only redounds
against WeC's liability and negates KKCA's assertion that there were
already erosions prior to the commencement of its
undertaking.53 Note that KKCA commenced performance of its
undertakings on December 22, 2003, or seven days after the signing
of the contract on December 15, 2003. Therefore, by January 10,
2004, KKCA was already in full control of the project for 19 days.
Within such period, KKCA should have already installed, or was in
the process of installing soil protection measures to ensure safe
excavation pursuant to its contractual obligation under paragraph 33
of Addendum #01.
Luis T. Reyes, KKCA's consultant54 tasked to supervise the
excavation, testified that no soil protection measure was installed
prior to the erosion. It was only after the erosion took place that
KKCA installed remedial measures to avert aggravation but to no
avail. Hence, the services of soil protection specialists, Pearl and
Jade, were called upon. Thus:
Archt. L. T. Reyes (Respondent):
Actually[,] we have performed the remedial measures on that. We
have installed the warmest and plastering, so that we can contain the
erosion.
Atty. B. G. Fajardo (Arbitrator): You just follow me, in January, okay, you took over this revision of
the excavation work. Now during the work, excavation works [which]
Yeah[,] before this warmest, this remedial measure was done[,] there you supervise[d] because of the addendum[,] there was an erosion in
were prior erosions. There were a remedial measure because January 2004, is that correct?
erosion took place, is that correct?
Archt. L. T. Reyes (Respondent):
Archt. L. T. Reyes (Respondent):
Yes[,] sir.
Yes. There is an erosion, there [were] erosion[s].
Atty. B. G. Fajardo (Arbitrator):
Atty. B. G. Fajardo (Arbitrator):
After the erosion, you did the remedial measures?
That's why precisely, after you did a remedial measures after the
erosion took place in January 2004, is that correct? Archt. L. T. Reyes (Respondent):

Archt. L. T. Reyes (Respondent): Yes[,] sir.

2004? Atty. B. G. Fajardo (Arbitrator):

Atty. B. G. Fajardo (Arbitrator): Okay. Now...

Yes. Archt. L. T. Reyes (Respondent):

Archt. L. T. Reyes (Respondent): They do continuously...

Yes, sir. Atty. B. G. Fajardo (Arbitrator):

Atty. B. G. Fajardo (Arbitrator):
Then of course after you made a remedial measure[,] you [were]
continuous[ly] supervising the excavation, is that correct?
Archt. L. T. Reyes (Respondent):
Just answer me, just answer then go ahead. You did the remedial
measures, okay. Then the excavation works continued then there
was another erosion. So you abide again [by] the remedial
measures, that's my point. In other words, you perform[ed] duties
attendant to your work as contractor in the excavation works in the
basement.

Archt. L. T. Reyes (Respondent):

Excuse me[,] sir.

Atty. B. G. Fajardo (Arbitrator):

Excuse me, sir. We do remedial measure continuously not only when
there is erosion. We continuously put a (unintelligible) and
subsequently during that time[,] we consulted a foundation specialist
which [is] Pearl and Jade. We do not attack the problem when there
is a problem. We attack it before the problem occurs.
Atty. B. G. Fajardo (Arbitrator):
Yeah, that is correct. That should be the ideal thing. But you did the
remedial measures in January after the erosion took place in
January, is that correct?
Archt. L. T. Reyes (Respondent):
Yes.
Atty. B. G. Fajardo (Arbitrator):
Okay. That's true, you did· the remedial measures because [erosion]
already took place. And it[']s good that you continued making a
remedial measure, but the fact is there was a prior erosion before
you did the remedial measures. And you continued [with] this[.]
[D]espite your remedial measure[,] another erosion took place in
February 2004, is that correct!
Archt. L. T. Reyes (Respondent):
It's correct.55 (Emphasis ours)
As found by the CIAC:
[E]rosion occurred on January 20, 200756 (sic) after full blast
excavation started on January 17, 200757(sic) after excavation was
added to its scope of work on December 15, 2003 (Exh. R-11) which
placed under its supervision the excavation works of the sub-
contractor. Plainly, when [KKCA] accepted excavation as an
additional work to the scope of the contract[,] it became part of its
contractual obligations under the contract. x x x [KKCA] showed [it]
felt answerable for the erosion when it voluntarily took measures to
contain the erosion after it happened. (Affidavit of Luis T. Reyes)
[KKCA] did not have the competence to do soil protection itself or
supervise its being done by the sub-contractor and hid this
deficiency, consequently, failing to address the problem immediately
until the erosion took place. The soil protection it did immediately
after the initial erosion was not adequate as further erosion was
evident which compelled [KKCA] to engage the services of a
foundation specialist, Pearl and Jade[,] in order to improve the soil
protection methodology. (Affidavit of Luis T. Reyes) x x x.58
In its petition before the Court, KKCA imputes negligence on the part
of WCC,59 but fails to specifically mention how. Nothing was asserted
to point out how the erosion occurred due to WCC's action or
inaction.
In any event, pursuant to paragraph 21 of Addendum #01, any fault
or negligence committed by WCC after KKCA commenced
performance of its undertakings per contract provisions should be
attributed to the latter.60
Attempting to be relieved from liability, KKCA pointed out that: (a) it
was Colorite which selected WCC to do the excavation works; (b)
WCC's services was engaged before the construction contract was
signed; and (c) WCC already started with excavation works on
November 19, 2003.61 KKCA cannot now claim that it was unaware
of the foregoing circumstances before it signed the contract. In the
proceedings before the CIAC, Chua categorically admitted that when
he signed the contract, he already knew that excavation was going
on in the area.62 In spite of such knowledge, he freely and voluntarily
signed and assented to the Addendum. Thus:
Atty. B. G. Fajardo (Arbitrator):
x x x. Now when you sign[ed] the addendum, you sign[ed] it freely,
without duress, is that correct? You signed it without duress[,] you
signed it freely?
Archt. K. K. Chua (respondent):
Yes.63
xxxx
Atty. B. G. Fajardo (Arbitrator):
No, but you know when you sign[ed] the contract on December 15,
2003, you already knew that there were excavations there.
Archt. K. K. Chua (Respondent):
Yes, we do sir.64 (Emphasis ours)
Indeed, KKCA cannot deny its contractual obligation to ensure that
excavation works were properly done. It is settled that the law does
not relieve a party from the effects of an unwise, foolish, or
disastrous contract, entered into with all the required formalities and
with full awareness of what he was doing, and courts have no power
to relieve parties from obligations voluntarily assumed, simply
because their contracts turned out to be disastrous deals or unwise
investments. Valenti non fit injuria.65
The CA was correct when it found that pursuant to paragraph 33 of
Addendum #01, and the pertinent provision of Article XIII of the Main
Construction Contract, KKCA assumed the responsibility of ensuring
that properties adjacent to the project are protected from erosion and
settlement.66 Said contractual provisions read:
Paragraph 33 of Addendum #01 states:
33. The Contractor to provide, erect and maintain all necessary
bracing, shoring, planking, etc.[,] as required to protect the adjoining
property against settlement and damages. Adequate dewatering
equipments (sic) and pumps to be provided. The Contractor has the
prerogative to choose what type of methodology that he would use
for the project but he [has] to make sure that [it] will protect the
adjacent properties against erosion and settlement.67
Article XIII of the Main Construction Contract:
The OWNER shall be held free and harmless from any liability
arising from claims of third parties arising from the construction such
as[,] but not limited to wages, pay, compensation for injury or death
to laborers, SSS premiums, adjoining property settlement, etc.[,] all
of which shall be for the account of the CONTRACTOR.68
The factors which delayed the
project's completion
From the date the Notice to Proceed was issued, less the seven-day
interval before KKCA commenced its work and the 73-calendar days
allowed slippage, the project should have been finished on March 5,
2005. The restoration of the Hontiveros property was completed in
October 2005. Yet, to date, the construction remained suspended.
According to KKCA, the delay of the project was not only due to the
Hold Order issued by the City Government of Makati. It claims that
the discontinuance of the project was also due to Colorite's failure to
pay for soil protection cost and the balance of its 70% share in the
restoration cost of the Hontiveros property.69
While the CIAC agreed with KKCA that soil protection work should
be for the account of Colorite, the said tribunal failed to consider the
parties' agreement that Colorite would share in the restoration of the
Hontiveros property as found by the CA.70
Soil protection is within the
contractor's scope of work; hence,
deemed included in the contract
price
In claiming that it is entitled to be reimbursed for the cost spent for
soil protection, KKCA firmly argued that excavation and soil
protection works were not part of its responsibilities.71 KKCA pointed
out that: (a) Colorite hired WCC to do excavation works; (b)
Addendum #01 was not included during the discussion on the
contents of the Construction Contract; and (c) KKCA's Summary of
Bid Proposal states that excavation works shall not form part of its
scope of work.72 The pertinent part of the Summary of Bid Proposal
reads:
"We (or I) make this proposal with full knowledge of the kind,
quantity, and quality of the Articles and services required and if the
proposal is accepted, undersigned (KKCA) agrees to enter into
formal agreement and mobilize and start after the excavation work by
the other contractor." 73 (Emphasis ours)
The Court cannot sanction KKCA's stance. What is material is that
KKCA agreed to the stipulations contained in Addendum #01, which,
among others, placed excavation and soil protection works within its
scope of undertakings. Neither does it matter that the stipulations in
Addendum #01 and Addendum #02 were not included in the
discussion on the contents of the main Construction Contract as long
as the concerned party was not deprived of ample time to study
them. In any event, it was established that KKCA's consent to the
provisions of Addendum #01 and Addendum #02 was not vitiated.
Anent the stated provision of the Summary Bid Proposal, it was
rendered ineffective when KKCA unqualifiedly agreed to the
provisions of Addendum #01.
At the onset of their contractual relationship, Colorite engaged KKCA
to render architectural services. Eventually, Colorite approved a
project scheme submitted by KKCA proposing a four-storey
residential building. However, Colorite also requested KKCA to
conduct and supervise the bidding process for the project.
On September 24, 2003, the pre-bid conference was held.74 In the
Minutes75 of the said conference, the matter on how excavation and
soil protection works shall be performed was discussed under item II,
paragraph (g)76 thereof. Accordingly, the totality of excavation work
was divided into two levels, each with corresponding soil protection
measure. The first level covers the depth, which extends from the
natural grade-line down to the basement level, and which was to be
undertaken by an excavation sub-contractor. On the other hand, the
second level covering the depth beginning from the basement· level
down to the required column foundation height and other trimming
works are to be done by the General Contractor. Item II, paragraph
(g) of the pre-bid conference minutes of meeting reads:
g) KKCA advised all the Bidders that excavation works from the
natural grade line up to the Basement level shall be done by
separate Excavation Contractor. However, excavation works from
the Basement level up to the required column foundation height and
other trimming works shall be included under the Contract of the
General Contractor.
Furthermore, all safety requirements needed during the General
excavation works shall be included under the Contract of the
Excavation Contractor. However, any safety requirements needed
during the excavation works of the column footing foundation shall
be included under the Contract of the General Contractor.77
In spite of the presence of interested bidders, Colorite decided to
secure the services of KKCA as the project's general
contractor.78 KKCA agreed, and was asked to submit a
formal Summary of Bid Proposal.79 As pointed out above, and
pursuant to item II, paragraph (g) of the pre-bid conference minutes
of meeting, the summary of bid proposal pertinently stated that
KKCA shall mobilize and start after the excavation works are
performed by the excavation sub-contractor.
However, when the parties met on December 15, 2003 for the
signing of the contract, Colorite presented Addendum #01 and
Addendum #02. As already discussed, paragraph 21 of Addendum
#01 included all excavation works within the scope of works of the
general contractor, while paragraph 33 of Addendum #01 stipulates
that the general contractor shall be responsible for soil protection
works, i.e., provide, erect and maintain all necessary bracing,
shoring, planking, etc., as required to protect the adjoining property
against settlement and damages, and to make sure that the
methodology to be used will protect the adjacent properties against
erosion and settlement.
The provisions of paragraphs 21 and 33 of Addendum #01 are clear
and unambiguous:
21. All excavation works as required for, should be included on the
scope of works of the Contractor. Disregard Pre-Bid Minutes Item II-
G at Page 3.
NOTE: Corresponding cost to be paid to the contractor based on
sub-contractor's cost.80
33. The Contractor to provide, erect and maintain all necessary
bracing, shoring, planking, etc. as required to protect the adjoining
property against settlement and damages. Adequate dewatering
equipments (sic) and pumps to be provided. The Contractor has the
prerogative to choose what type of methodology that he would use
for the project but he have (sic) to make sure that they will protect the
adjacent properties against erosion and settlement.81
Article 1370 of the Civil Code in part states that "if the terms of a
contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall
control."
As worded, paragraph 21 is only concerned with excavation works,
and no other. Paragraph 21 provides that all excavation works are
within the scope of works of KKCA but it does not oblige KKCA to
directly perform the same as it admits the employment of excavation
sub-contractors, albeit for the account of Colorite. On the other hand,
paragraph 33 explicitly makes soil protection works, and the
installation of adequate dewatering equipment and pumps as
KKCA's direct contractual obligation. While soil protection works and
adequate dewatering system have distinct purposes, they are similar
since both are continuing necessities while the foundation and the
basement are not yet secured. It was thus logical that both items
were placed under the general contractor's direct responsibilities
under paragraph 33.
In Rizal Commercial Banking
Corporation v. Teodoro G. Bernardino,82 the Court is emphatic that:
The rule is that where the language of a contract is plain and
unambiguous, its meaning should be determined without reference to
extrinsic facts or aids. The intention of the parties must be gathered
from that language, and from that language alone. Stated differently,
where the language of a written contract is clear and unambiguous,
the contract must be taken to mean that which, on its face, it purports
to mean, unless some good reason can be assigned to show that the
words used should be understood in a different sense. Courts cannot
make for the parties better or more equitable agreements than they
themselves have been satisfied to make, or rewrite contracts
because they operate harshly or inequitably as to one of the parties,
or alter them for the benefit of one party and to the detriment of the
other, or by construction, relieve one of the parties from terms which
he voluntarily consented to, or impose on him those which he did
not.83 (Emphasis in the original deleted)
There was no agreement that
Colorite has to share in the
restoration of the Hontiveros
property.
The CA stated that the parties agreed for Colorite to contribute Php
700,000.00 in the restoration of the Hontiveros property. The CA also
held that the provision in the main contract which states that "the
owner shall be held free and harmless from any liability arising from
claims of third parties arising from the construction"84 was effectively
superseded thereby. Thus, owing to Colorite's failure to deliver the
said amount, the CA ruled that Colorite was partly to be blamed for
the delay of the project. Accordingly, Colorite was adjudged as only
entitled to 50% of the liquidated damages it is claiming. For the same
reason, Colorite was also held liable of 50% of the total maintenance
cost.
According to the CA:
It can thus be seen that despite its earlier commitment to contribute
₱700,000.00 for restoration costs, Colorite failed to pay the said
amount. This Court holds that while Colorite cannot be held
accountable for 70% of the restoration costs in the absence of a
clear agreement to this effect, it should nonetheless be directed to
fulfill its obligation to pay ₱700,000.00. x x x.
x x x [A]lthough their contract states that KKCA should be held liable
for expenses pertaining to such damage, the subsequent acts of the
parties, specifically Colorite's undertaking to contribute ₱700,000.00
to the restoration costs, effectively superseded the said terms of the
contract, and should now be made the governing law between the
parties. Article 1159 of the Civil Code supports this conclusion, when
it provides that "(o)bligations arising from contracts have the force of
law between the contracting parties and should be complied with in
good faith." Moreover, Article 1315 of the same Code provides that
"(c)ontracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law." When Colorite thus bound itself to share in the restoration
cost by paying ₱700,000.00, this effectively became the contract
between the parties with regard to this matter. While at first, there
appeared to be a confusion as to the exact amount because KKCA
was insisting on a 70-30 sharing, it has been established that KKCA
also eventually demanded ₱700,000.00 from Colorite, thereby
showing that at that point, there was already an agreement as to the
amount that should be delivered by Colorite. It may be said,
therefore, that a binding agreement has been perfected between the
parties insofar as the restoration cost is concerned, and they should
be bound by it regardless of who should be blamed, if any for the
erosion. x x x.
xxxx
x x x We are convinced that the parties' incapability to perform what
was incumbent upon them was not attended by bad faith. On the part
of Colorite, its failure to advance ₱700,000.00 as part of its share in
the restoration cost was due to a breakdown in the negotiation
process which occurred when KKCA was insisting on a 70-30
sharing. Although We maintain that Colorite was still at fault when it
failed to give the promised ₱700,000.00 when KKCA was already
demanding the same, it cannot be said that such refusal was tainted
by bad faith. Instead, it was more a case of a breakdown in the
negotiation process, or a deadlock which the parties were not able to
overcome due to their adherence to their respective positions. x x
x.85 (Emphasis ours)
As can be deduced from the foregoing, it is not clear that the parties
really agreed on whether Colorite was to contribute Php 700,000.00
or 70% of the restoration cost. The CA's conclusion arose from
KKCA's demand of Php 700,000.00 from Colorite. The CA regarded
the same as KKCA's acceptance of Colorite's purported offer.
KKCA insists that the CA erred in ruling that Colorite is liable only for
the amount of Php 700,000.00 and not 70% of the subject restoration
cost.86
Absent any showing that the minds of the parties did meet on an
essential term of the purported contract, i.e., whether Colorite should
contribute Php 700,000.00 or 70% of the total cost, it appears that no
subsequent and definitive agreement or contract was perfected
between the parties on this regard. In the case of Pen v. Julian,87 the
Court instructed that the perfection of a contract entails that the
parties should agree on every point of a proposition - otherwise,
there is no contract at all.88
As found by the CIAC, aside from the bare assertions of Chua, no
other evidence was offered to sufficiently prove that an agreement to
share in the restoration cost of the Hontiveros property was perfected
between the parties. Thus:
The Arbitral Tribunal is not convinced that there was an agreement
by the parties on the sharing of expenses for the restoration of the
Hontiveros property. [Colorite] denied there was such an agreement
(during the ocular inspection of Project Site) and the alleged written
agreement presented by [KKCA] was not signed by the parties. (Exh.
R-19) [KKCA] mentioned several names whose presence
supposedly witnessed [Colorite's] agreeing to the 70%-30% sharing
in the restoration expenses but failed to present any at the hearing in
order to support his contention. (Affidavit of Ka Kuen Tan Chua, Item
37)89
KKCA is under obligation to secure
the quitclaim of the Hontiveros
family and the lifting of the Hold
Order issued by the City
Government of Makati
There are other factors which hinder the continuation of the project;
to wit: (a) the need to secure the Hontiveros family's quitclaim; and
(b) the lifting of the Hold Order issued by the City Government of
Makati. Verily, without the quitclaim from the Hontiveros, the Hold
Order will not be lifted. With the Hold Order still in effect, no amount
of settlement between the parties can push the project to proceed.
According to the CA, as it is KKCA's obligation to complete the
project, then it should also be tasked. to perform whatever is
necessary for the purpose, and this includes securing the Hontiveros
family's quitclaim and the lifting of the City Government of Makati' s
Hold Order.90 For its part, however, KKCA is adamant in its position
that excavation and soil protection works are not its responsibilities;
hence, the lifting of the Hold Order should not be assigned to it. 91
The Court now holds that KKCA is under the obligation to secure the
quitclaim from the Hontiveros family and to work for the lifting of the
Hold Order. This obligation is deemed written in Article XIII of the
construction contract, which reads:
The owner shall be held free and harmless from any liability arising
from claims of third parties arising from the construction such as but
not limited to wages, pay, compensation for injury or death to
laborers, SSS premiums, adjoining property settlement, etc. all of
which shall be for the account of the CONTRACTOR.92 (Emphasis
ours)
By express provision of Article 1315 of the Civil Code, the parties are
bound not only to the fulfilment of what has been expressly stipulated
but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
Without a doubt, Article XIII was stipulated to secure Colorite from
any liability arising from third-party claims. Needless to say, the
security under contemplation is necessarily anchored on Colorite's
interest in the completion of the project. In expressly anticipating the
probability of causing damages to adjacent properties, the stipulation
comprehends as well as the resolution of legal issues, which may
arise incidental to the construction project.
The records show that KKCA was remiss in its obligation to secure
the quitclaim from the Hontiveros family and work for the lifting of the
City Government of Makati's Hold Order. In spite of the fact that the
Hontiveros property has already been restored, it appears that KKCA
did not bother to secure the needed quitclaim or even a certificate of
completion from the contractor of the subject rehabilitation. This can
be gleaned from the following excerpt of the CIAC hearing:
Atty. A. H. Habitan (Counsel-Claimant):
So, you see now that the Hontiveros property, the damage portion
was finally restored ...
Archt. K. K. Chua (Respondent):
Yes sir.
Atty. A. H. Habitan (Counsel-Claimant):
When was that, the date of completion of restoration?
Archt. K. K. Chua (Respondent):
The target date of completion as stated here is sometime of October
2005.
Atty. A.H. Habitan (Counsel-Claimant):
2005, and you were able to accomplish it within the target date.
Archt. K. K. Chua (Respondent): Atty. A. H. Habitan (Counsel-Claimant):

They did the JSV Group. x x x After so many follow ups and you were not given [a
certification/quitclaim] did you not consult a lawyer what legal action
Atty. A. H. Habitan (Counsel-Claimant): could be done against this three entities, ETCOR, JSV Contract
Services and Hontiveros family.
And also the contractor which is the JSV Contract Services was fully
paid by you? Archt. K. K. Chua (Respondent):

Archt. K. K. Chua (Respondent): No, I did not.

Yes sir. Atty. A. H. Habitan (Counsel-Claimant):

Atty. A. H. Habitan (Counsel-Claimant):
Now at the time you handle the full payment, did you not require
them to issue you a certification of the completion of the Hontiveros
property?
Did it not occur to your mind that this certifications or [quit]claim
could be a basis for you to present it to the Building Official so that
the Hold Order will be entirely lifted?
Archt. K. K. Chua (Respondent):

Archt. K. K. Chua (Respondent): During that time it's more in my mind the obligation with the owner
which is [to] settle their share. Because of that.
We did follow [them up] for that.
Atty. B. G. Fajardo (Arbitrator):
xxxx
You did not answer my question. My question is, if you give the
certification either from FTCOR, from JSV Contract Services, or from
Atty. A. H. Habitan (Counsel-Claimant):
the Hontiveros family that the restoration of the damaged portion of
their property was completed, you can present this to the building
How about from Hontiveros, did you not try also to get a certification officials so that the hold order will be lifted.
of completion of the restoration or what you claim as [ quit]claim?
Archt. K. K. Chua (Respondent):
Archt. K. K. Chua (Respondent):
We did follow up regularly at their office and sometime through
No, because the ETCOR, the construction manager appointed by phone, that [quit]claim you are saying.
them and the City Hall committed to do so.
xxxx
xxxx
Atty. A. H. Habitan (Counsel-Claimant): Archt. Chua, you said that there was no [quit]claim or you were not
been able to secure the [quit]claim ...
Did [it] not occur to your mind that you ultimately will be liable to the
owner for not completing the project within this five times (sic)? Archt. K. K. Chua (Respondent):

Archt. K. K. Chua (Respondent): Yes ma'am.

No I don't think so because of their. .. is the negligence of the Atty. M. Somera (Counsel-Respondent):
Hontiveros and the ETCOR. It's not my negligence.
Have you secure the [quit]claim would you have to continue the
xxxx project?

Atty. A. H. Habitan (Counsel-Claimant): Archt. K. K. Chua (Respondent):

You did not consult your lawyer what action, legal action should be ... I would have, and...

Archt. K. K. Chua (Respondent): Atty. M. Somera (Counsel-Respondent):

I did not. When you have secure the [quit]claim, you have to continue the
construction.
Atty. A. H. Habitan (Counsel-Claimant):
Archt. K. K. Chua (Respondent):
You did not?
If l will be settled with the sharing of the 70-30.
Archt. K. K. Chua (Respondent):
xxxx
I did not.93
Atty. M. Somera (Counsel-Respondent):
It also appears that even if Colorite took it upon itself to secure the
quitclaim, and work for the lifting of the Hold Order, there was no If you were able to secure that [ quit]claim but you were not paid,
guarantee that the project will be continued. As shown by the would you still have to continue with the project?
following, KKCA was adamant on its position that unless Colorite
delivers the amount corresponding to 70% of the restoration cost of Archt. K. K. Chua (Respondent):
the Hontiveros property, the project will not continue. Thus:
I won't.
Atty. M. Somera (Counsel-Respondent):
Atty. M. Somera (Counsel-Respondent):
Why not?
Archt. K. K. Chua (Respondent):
Because that's part of our agreement the 70-30, I have shoulder[ed]
so much expenses. It's so hard to bear with that, and owner has
[breached] its contract, and its obligation and its commitment.94
KKCA is guilty of negligence
The Court cannot find any justification behind KKCA's failure to
insure that damages shall not arise as a result of the excavation.
KKCA employed soil protection only after erosion had already taken
place. Indeed, KKCA's failure to provide sufficient soil protection
measures caused the erosion and was the proximate cause which
set in motion the chain of events resulting to the project's delay.
KKCA represented itself as capable, competent and duly licensed to
undertake the project. Thus, it is but reasonable to assume that
KKCA knows the importance of soil protection in excavations and the
degree of the risks involved in the absence of such protective
measures. However, considering that Colorite never imputed bad
faith on the part of KKCA, and in the absence of proof that the
breach was attended by deliberate intent, the same can only be
regarded as simple negligence.95
Colorite is equally at fault for the
protracted delay of the project
While all the foregoing easily points to the conclusion that KKCA is
solely to be blamed for the delay of the project, the Court, however,
finds that Colorite is also at fault. From the moment it became
apparent that KKCA paid no heed to Colorite's demand to complete
the project, the latter also began contributing to its delay.
Despite KKCA's firm stance, the project need not actually be delayed
for too long. Other than KKCA's fau.lt, the delay can likewise be
avoided. For one, while KKCA is under contractual obligation to
secure the lifting of the Hold Order, there is, however, nothing which
prohibits Colorite from doing it.
Under Article V, paragraph (b)96 of the construction contract, Colorite
has the right to terminate the contract and carry out the completion of
the project in the event that the delay exceeds the maximum
allowable number of days of delay. However, Colorite opted to
continue to bind KKCA in the contract.
While it may be that Colorite is acting within its right, the Court
cannot find justification behind the former's inaction. Colorite asserts
that it should be awarded compensatory damages for unrealized
profit amounting to Php 460,189 .00 a month owing to the alleged
great demand for leasable residential/commercial units in the area.
However, Colorite's inaction weighs against the sincerity of its claim.
Certainly, it does not appear to be in keeping with good sense that
Colorite, on its part, did not act to secure the lifting of the Hold Order.
The law, under Article 19 of the Civil Code, provides that "[e]very
person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe
honesty and good faith."
Article 19 of the Civil Code prescribes a primordial limitation on all
rights by setting certain standards that must be observed in the
exercise thereof. Accordingly, when it becomes manifest that one's
right is exercised in bad faith for the sole intent of prejudicing
another, an abuse of a right exists.97 However, abuse of a right must,
of course, be proven since bad faith cannot be presumed, and
nothing was presented here to establish the same.
The Court finds that in continuing to bind KKCA in the contract,
Colorite was not impelled by good intentions. Article 2203 of the Civil
Code is explicit that:
The party suffering loss or injury must exercise the diligence of a
good father of a family to minimize the damages resulting from the
act or omission in question.
This codal rule clearly obligates the injured party to undertake
measures that will alleviate and not aggravate his condition after the
infliction of the injury, and places upon him the burden of explaining
why he could not do so.98
Thus, in the case of Las am v. Smith,99 the Court held that it was
correct to fix the recoverable damages to Php 1,254.10, and not to
charge the defendant with the full expense of medical treatment
amounting to Php 7,832.80 considering that it was plaintiffs refusal to
submit to an operation, which spawned the ensuing series of
infections and which required constant and expensive treatment for
several years.
Verily, common human experience dictates that under similar
circumstances, anybody in the predicament of Colorite would have
opted to exercise its right to terminate the contract the moment it
became apparent that the contractor would not lift a finger to finish
the project. Colorite should have pursued the completion of the
project by another contractor to minimize injury upon itself, without
prejudice, however, to the prosecution of its cause of action against
KKCA.
On claims of Damages
Colorite prays that KKCA be directed to pay exemplary damages,
attorney's fees, compensation for lost earnings, litigation expenses,
and liquidated damages. For its part, KKCA prays that Colorite be
adjudged liable for moral damages for the latter's bad faith in
deliberately causing delay in the project and refusal to cooperate,
attorney's fees, exemplary damages, arbitration fees and cost of
suit.100
Since KKCA cannot be regarded to be in bad faith, the Court is left
with no basis for awarding exemplary damages in favor of Colorite. In
contracts and quasi-contracts, the award of exemplary damages
connotes that the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.101 As the case provides no basis
consistent with any of the grounds provided under Article 2208102 of
the Civil Code for awarding attorney's fees and litigation cost, they
cannot be awarded.
The same evenly applies to KKCA's claim. While the Court does not
find sense in Colorite's failure to exercise its right to terminate its
contract with KKCA, it, however, does not equate to a finding of bad
faith. At any rate, KKCA did not impute bad faith against Colorite
upon this issue. KKCA imputed bad faith against Colorite for insisting
that excavation and soil protection works are its responsibilities, and
for refusing to comply with the alleged sharing agreement in the
restoration of the Hontiveros property. Since the Court does not
subscribe to KKCA's assertions, its claim for moral damages proved
to be without any basis.
Anent Colorite's claim for compensation for lost earnings, the Court
agrees with the tribunals below that it cannot be awarded for want of
sufficient basis. It assumes the nature of actual or compensatory
damages, and such form of damages can only be awarded upon
proof of the value of the loss suffered, or that of profits which failed to
be obtained.103 As propounded by the CA, "[t]he only basis relied
upon by Colorite in claiming this item is the allegation that the subject
property could have been rented at Php 460,189.00 a month. There
is, however, no showing that actual lease agreements exist so as to
make the loss of rentals factual and not speculative."104
Respecting Colorite's claim for liquidated damages, the Court does
not find any reason to deny them.
Under Article V105 of the construction contract, payment of liquidated
damages was expressly stipulated in case of delay, viz.:
A. Time being of the essence of this Agreement and the
CONTRACTOR'S acknowledgment that the OWNER will suffer loss
by the delay or failure of the CONTRACTOR to have the work
completed in all parts within the time stipulated in Article IV, the
CONTRACTOR hereby expressly covenants and agree to pay the
OWNER liquidated damages in the amount of TEN THOUSAND
PESOS (P 10,000.00) for each calendar day of delay (Sundays, and
legal holidays included) until final completion and acceptance by the
OWNER, the said payment to be made as liquidated damages, and
not by way of penalty."106 (Emphasis ours)
Further, the fact of KKCA's delay in the performance of its obligation
is well established. Nevertheless, it is also true that the delay would
not have been that long had Colorite opted to exercise its right to
take over the project.
Article 2226107 of the Civil Code allows the parties to a contract to
stipulate on liquidated damages to be paid in case of breach. It is
attached to an obligation in order to insure performance and has a
double function: (1) to provide for liquidated damages; and (2) to
strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach. As a general rule, contracts
constitute the law between the parties, and they are bound by its
stipulations. For as long as they are not contrary to law, morals, good
customs, public order or public policy, the contracting parties may
establish such stipulations, clauses, terms and conditions as they
may deem convenient.108
By definition, liquidated damages are a penalty, meant to impress
upon defaulting obligors the graver consequences of their own
culpability. Liquidated damages must necessarily make non-
compliance more cumbersome than compliance. Otherwise,
contracts might as well make no threat of a penalty at all.109
Thus, the fact that Article V, paragraph (a) of the construction
contract provides that the stipulated liquidated damages was not
meant to penalize the contractor for the delay, but in order to
compensate the owner for the loss it may suffer brought about by the
delay is inconsequential; it does not operate to remove the
stipulation's character as a penal clause.110 Neither does it require
that the loss suffered be proved. "Liquidated damages are identical
to penalty, so far as legal results are concerned. In either case, the
injured party need not prove the damages suffered by him."111
Reckoning from March 6, 2005, as the first day of delay up to this
writing, the project has been delayed for more than 12 years. Under
Article V, paragraph (d), the contract allows justifiable cause or
reason for delay, such as the occurrence of coup d'etat, general
strike, typhoon, earthquake, shortage of lubricant or diesel fuel, or
other civil disturbances that will directly affect the performance
schedule. However, upon the occurrence of a justifiable cause, the
contractor is required to submit a written request for time extension;
otherwise, the original schedule shall stand. Whether or not the
damaging and rehabilitation of the Hontiveros property would
constitute, or would be accepted by the parties as justifiable cause or
reason for delay has become inconsequential since no written
request for time extension was submitted.
Applying the stipulated daily rate, the totality of recoverable
liquidated damages shall amount to more than a staggering Php
43,800,000.00,112 which sum even surpasses the total contract price.
This cannot be decreed without running afoul of the spirit and
express letters of the law. Under Article 2227 of the Civil Code,
"[l]iquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or
unconscionable." Moreover, the fact that KKCA was not able to
perform substantial amount of work on the project is immaterial
because it is also expressly provided under Article 1229 of the Civil
Code that, "[e]ven if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable."
In view of the foregoing, and considering Colorite's own inaction
which contributed to the delay of the project, the Court deems that
the amount of liquidated damages, which can be equitably awarded
to Colorite should be that corresponding to the period beginning on
March 6, 2005 to October 2005, the date when the rehabilitation of
the Hontiveros property was completed - plus, a period of six months
covering October 31, 2005 to April 30, 2006 representing the
sufficient time within which Colorite should have determined whether
the project should continue under the original construction contract,
or whether the contract should be terminated and the project taken
over. The period within which the project shall be completed by
another contractor in the event that the original contract was
terminated shall not be considered in the computation of the period
of delay pursuant to the Court's ruling in WERR Corporation
International v. Highlands Prime Inc.113 Accordingly, the amount of
liquidated damages shall be Php 4,210,000.00 corresponding to the
total of 421 days beginning March 6, 2005 up to April 30, 2006.
Moreover, as the parties have been locked in a prolonged legal
battle since July 2007, equity demands that no interest shall be
awarded on said amount prior to the finality of this Decision - lest the
intention of the law, as expressed in Articles 2227 and 1229 of the
Civil Code, be defeated.
KKCA is ordered to finish the project.
The parties are to share in the increase in
the construction cost over and above the
contract price.
The CA and the CIAC agree that: (a) KKCA should see the project to
its completion; (b) the escalation clause114 of the construction
contract should apply only during and within the contract period; and
(c) for the purpose of completing the project, it is but proper that
necessary adjustments in the contract price be made to
accommodate increase in the prices of materials after the contract
period. However, while the CIAC contends that the parties should
evenly shoulder the necessary price adjustment on a fifty-fifty basis,
the CA's decision is silent on this point.
For its part, KKCA asserts that it should be released from the
obligation of completing the project because the working relationship
between the parties has become· so strained; hence, the
construction project is best to be performed by another
contractor.115 KKCA also argues that to compel it to finish the project
is violative of the constitutional guarantee against involuntary
servitude.116
The Court cannot sanction KKCA's argument. Both the doctrine of
strained relations and the policy against involuntary servitude are
concepts, which only apply to situations where one is in the service
of another, respectively, by virtue of an employment contract or by
force or compulsion. They cannot apply in reciprocal contracts such
as contracts for a piece of work, lest we run afoul with the principle of
autonomy and obligatory nature of contracts evenly guaranteed
under Article III, Section 10117 of the Constitution. If KKCA truly
believes that it has lawful basis to withdraw from the contract and/or
be released therefrom, it should have filed an action for rescission.
The Court agrees that KKCA should finish the project. The contract
subsists, and by all legal measure, the parties should comply with
their contractual obligations. For the same reason, the Court does
not share the disquisition of the tribunals below that the escalation
clause of the contract should apply only during and "within the
contract period," and that for the purpose of completing the project,
necessary adjustments in the contract price must be made to
accommodate increase in the cost of materials and/or labor "after the
contract period."
As the contract continues to be in effect, every stipulation contained
therein should, in principle, be held as controlling. Thus, the contract
price should remain per agreement of the parties. This has to be for
there is nothing in the contract which provides that any of its
provisions will only be effective within the stipulated period of
completion. In fact, the contract even contemplated the possibility of
delay, and as stipulated, it was without prejudice to the effectivity of
the escalation clause.
Owing to the length of time that the project was delayed, the Court
agrees that the original contract price will not suffice anymore to
cover the cost of completing the project. However, the Court cannot
adjust the contract price because it has no authority to rewrite
contracts even to foster equity.
KKCA breached its obligation in failing to provide sufficient soil
protection measures, and this was the proximate cause of the delay.
In a number of cases, the Court maintained that it is fundamental in
the law on damages that the one injured by a breach of contract, or
by a wrongful or negligent act or omission shall have a fair and just
compensation commensurate to the loss sustained as a
consequence of the defendant's act.118
In building contracts, it has been held that the measure of damages
for breach is the amount expended by the owner in completing the
project and in correcting defects.119 Hence, the increase in the
amount necessary to finish the project, over and above the contract
price, should be charged against KKCA as imposable damages. By
legal definition, such damages are in the nature of actual or
compensatory damages.
True, in order to legally award actual damages, the same must be
duly proven.120 In a number of cases,121 the Court emphasized that
except in those cases where the law authorizes the imposition of
punitive or exemplary damages, a party claiming damages must
establish by competent evidence the amount of such damages.
Here, the additional amount for the completion of the project remains
unquantifiable. Nevertheless, on principle, it can be awarded
because said amount is a necessary incident in the completion of the
project. Verily, considering the length of time that the project was
delayed, the fact of increase in the construction cost above the
contract price is beyond proof, and the utilization of said amount is
an absolute certainty as long as Colorite remains intent on seeing the
project through.
Quite similar to the issue at hand, in the case of Baylen Corporation
v. CA,122 the Court awarded actual damages in the amount of Php
603,160.00 representing the increase in construction cost. Said
amount was adjudged in consideration of the commissioner's report
and not because it was proven as the amount of actual loss. Indeed,
there was no way of proving the actual amount of increase in
construction cost, for as in this case, the project in said case was yet
to be completed.
However, considering that Colorite is also to be blamed for the delay
of the project, it would be unjust to rule that KKCA should shoulder
the entire amount as it will be tantamount to unjust enrichment on the
part of Colorite. Thus, the parties should commonly share the
amount of the increase in construction cost.
However, as previously discus.sed, Colorite's fault or inaction was
determined to have begun on May 1, 2006. Hence, Colorite cannot
be regarded as at fault for the first year of delay.
Under the circumstances, the Court deems that a sharing of the
increase in the construction cost at the ratio of 40% for Colorite and
60% for KKCA is equitable.1âwphi1
On the basis of the same reasoning, the amount spent for
maintenance cost up to April 30, 2006 shall be for the sole account
of KKCA. Maintenance cost spent from May 1, 2006 onward shall be
equally shared by the parties.
Respecting the issues on whether Colorite is liable for the payment
of Design Fee and ECC Permit, the Court agrees with the findings of
the tribunals below. Accordingly, the Court sees no reason to disturb
the same. In addition thereto, however, said liabilities shall earn legal
interest at the rate of six percent (6%) per annum from finality of this
Decision until fully paid.
WHEREFORE, the Decision and Resolution of the Court of Appeals,
dated July 28, 2009 and October 4, 2010, respectively, in CA-G.R.
SP Nos. 103892 and 103899,
are AFFIRMED with MODIFICATIONS.
The Decision of the Court of Appeals dated July 28, 2009
1s AFFIRMED with respect to the following:
1. Colorite is not entitled to loss of rental earnings, attorney's fees
and litigation/arbitration expenses;
2. KKCA is not entitled to its claim for moral and exemplary
damages, attorney's fees and. litigation/arbitration costs; and
3. KKCA is enjoined to secure the quitclaim from the Hontiveros
family and lift the Hold Order from the City Government of Makati in
order for the construction project to proceed.
The assailed decision is MODIFIED, as follows:
1. Colorite is not liable to share in the restoration cost of the
Hontiveros property;
2. Colorite is entitled to its claim for liquidated damages in the total
amount of Php 4,210,000.00, plus legal interest at the rate of six
percent (6%) per annum from finality of this Decision until fully paid;
3. Colorite is ordered to reimburse KKCA the amount paid by KKCA
for the Environment Compliance Certificate permit in the amount of
Php 50,000.00, plus six percent (6%) interest per annum from finality
of this Decision until fully paid;
4. KKCA is entitled to its claim for design fee in the amount of Php
2,310,000.00, plus six percent (6%) interest per annum from finality
of this Decision until fully paid;
5. KKCA is not entitled to its claim for soil protection works;
6. KKCA to shoulder the amount spent for maintenance costs up to
April 30, 2006. The amount spent for maintenance cost from May 1,
2006 onward shall be equally shared by the parties; and
7. KKCA is directed to finish the subject construction project. The
increase in the cost of construction, or such amount pertaining to the
difference between what it will actually cost to finish the project and
the contract price shall be shared by the parties: 40% of which shall
be shouldered by Colorite, and 60% for the account of KKCA.
SO ORDERED.
G.R. No. 191458
CHINATRUST (PHILS.) COMMERCIAL BANK, Petitioner
vs.
PHILIP TURNER, Respondent
DECISION
LEONEN, J.:
Issues that were not alleged or proved before the lower court cannot
be decided for the first time on appeal. This rule ensures fairness in
proceedings.
This Petition for Review assails the Court of Appeals' (a) December
14, 2009 Decision1 affirming the Regional Trial Court's Decision
dated January 29, 2007 and (b) its March 2, 2010
Resolution2 denying petitioner Chinatrust (Philippines) Commercial
Bank's (Chinatrust) Motion for Reconsideration.3 The Regional Trial
Court set aside the Metropolitan Trial Court's dismissal4 of the
complaint. It ordered Chinatrust to restore to the account of
respondent Philip Turner (Turner) the following amounts: 1) US$430
or ₱24,129.88, its peso equivalent as of September 13, 2004; and 2)
US$30 or ₱l,683.48, its peso equivalent as of September 13, 2004. It
also ordered Chinatrust to pay ₱20,000.00 as moral damages,
₱l0,000.00 as exemplary damages, and ₱5,000.00 as attorney's
fees.
On September 13, 2004, British national Turner initiated via
Chinatrust-Ayala Branch the telegraphic transfer of US$430.00 to the
account of "MIN TRAVEL/ESMAT AZMY, Account No. 70946017,
Citibank, Heliopolis Branch" in Cairo, Egypt.5 The amount was partial
payment to Turner's travel agent for his and his wife's 11-day tour in
Egypt.6Turner paid a service fee of US$30.00. Both amounts were
debited from his dollar savings account with Chinatrust.7
On the same day, Chinatrust remitted the funds through the Union
Bank of California, its paying bank, to Citibank-New York, to credit
them to the bank account of Min Travel/EsmatAzmy in Citibank-
Cairo, Egypt.8
On September 17, 2004, Chinatrust received Citibank-Cairo's
telexnotice about the latter's inability to credit the funds it received
because the "beneficiary name d[id] not match their books (referred
to as the 'discrepancy notice')."9 In other words, the beneficiary's
name "Min Travel/Esmat Azmy" given by Turner did not match the
account name on file of Citibank-Cairo.10 Chinatrust relayed this
information to Turner on September 20, 2004, "the next succeeding
business day."11
Chinatrust claimed that it relayed the discrepancy to Turner and
requested him to verify from his beneficiary the correct bank account
name.12 On September 22, 2004, Turner allegedly informed
Chinatrust that he was able to contact Esmat Azmy, who
acknowledged receipt of the transferred funds. Turner, however, had
to cancel his travel-tour because his wife got ill and requested from
Chinatrust the refund of his money.13
According to Chinatrust, it explained to Turner that since the funds
were already remitted to his beneficiary's account, they could no
longer be withdrawn or retrieved without Citibank-Cairo's consent.
Turner was, thus, advised to seek the refund of his payment directly
from his travel agency.14
Turner allegedly insisted on withdrawing the funds from Chinatrust
explaining that the travel agency would forfeit fifty percent (50%) as
penalty for the cancellation of the booking, as opposed to the
minimal bank fees he would shoulder if he withdrew the money
through Chinatrust.15 Hence, Chinatrust required Turner to secure, at
least, his travel agency's written certification denying receipt of the
funds so that it could act on his request. However, Turner purportedly
failed to submit the required certification despite repeated
reminders.16
On October 28, 2004, Chinatrust received Citibank-Cairo's Swift
telex reply, which confirmed receipt of Chinatrust's telegraphic funds
transfer and its credit to the bank account of Min Travel, not "Min
Travel/Esmat Azmy" as indicated by the respondent, as early as
September 15, 2004.17 This information was relayed to Turner on
October 29, 2004.18
Despite this official confirmation, Turner allegedly continued to insist
on his demand for a refund.19
On March 7, 2005, Turner filed a Complaint20 against Chinatrust
before the Metropolitan Trial Court of Makati City, demanding the
refund of his telegraphic transfer of ₱24,129.88 plus damages.21
Upon further queries, Chinatrust received another telex on
September 28, 2005 from Citibank-Cairo confirming again and
acknowledging receipt of Turner's remittance and its credit to the
account of Min Travel on September 15, 2004.22
After the parties had submitted their respective position papers in
accordance with the Rules on Summary Procedure, the Metropolitan
Trial Court of Makati City, Branch 61 rendered a Decision23 on
January 15, 2006, dismissing Turner's complaint for lack of merit as
well as Chinatrust's counterclaim. The Metropolitan Trial Court found
sufficient evidence to prove that Chinatrust complied with its
contractual obligation to transmit the funds to Citibank-Cairo and that
these funds were actually credited to the intended beneficiary's
account.24
Turner filed an appeal. On the substantive matters, Turner argued
that the Metropolitan Trial Court erred in ruling that he had no basis
in claiming a refund from Chinatrust and in not awarding him
damages and attorney's fees.25
Branch 137, Regional Trial Court of Makati City rendered a
Decision26 on January 29, 2007, reversing and setting aside the
decision of the Metropolitan Trial Court. While it agreed with the
Metropolitan Trial Court's findings that the funds had been deposited
to the account of the beneficiary as early as September 15, 2004, the
Regional Trial Court ruled that this was not sufficient basis to absolve
Chinatrust of any responsibility.27 The trial court found insufficient
evidence to show that Chinatrust was not negligent in the
performance of its obligation under the telegraphic transfer
agreement. It held that no "discrepancy notice" from Citibank-Cairo
was even presented in evidence.28
The Regional Trial Court further held that Chinatrust failed to render
its services in a manner that could have mitigated, if not prevented,
the monetary loss, emotional stress, and mental anguish that Turner
suffered for six (6) weeks while waiting for his intended beneficiary's
confirmation of receipt of his money.29 Hence, Chinatrust was found
liable for the monetary loss suffered by Turner and for damages. The
Decision disposed as follows:
WHEREFORE, in view of all the foregoing, the Decision of the
Metropolitan Trial Court of Makati City, Branch 61, in Civil Case No.
87471, is hereby REVERSED and SET ASIDE, and a new one
entered finding for plaintiff-appellant PHILIP TURNER, and against
defendant-appellee CHINA TRUST (PHILS.) COMMERCIAL BANK
CORPORATION by ordering the latter to pay, or restore to PHILIP
TURNER's account with said Bank, the following amounts:
(1) US $ 430.00 or ₱24,129.88, the Peso equivalent at the rate of
₱56.l160/US $1.00, as of 13 September 2004; and
(2) US $ 30.00 or ₱l,683.48, the Peso equivalent at the rate of
₱56.1160/US $1.00, as of 13 September 2004.
The defendant-appellee bank is further ordered to pay plaintiff-
appellant Philip Turner ₱20,000.00 as and for moral damages;
₱10,000.00 as and for exemplary damages; and ₱5,000.00 as and
for reasonable attorney's fees.
SO ORDERED.30
Chinatrust filed a motion for reconsideration, but it was denied by the
Regional Trial Court in a Resolution31 dated June 4, 2007.
On July 4, 2007, Chinatrust filed a Petition for Review32 under Rule
42 of the 1997 Rules of Civil Procedure before the Court of Appeals.
In its Decision33 dated December 14, 2009, the Court of Appeals
dismissed the petition and upheld the decision of the Regional Trial
Court. Chinatrust's subsequent Motion for Reconsideration34 was
likewise denied in the Court of Appeals' Resolution35 dated March 2,
2010.
Hence, this Petition36 was filed. In compliance with this Court's
directive, respondent filed his Comment,37 to which petitioner filed its
Reply.38
Petitioner stresses that based on the allegations in the Complaint,
the real issue is "whether or not the petitioner-bank has legally
complied with its contractual obligation with respondent in remitting
his telegraphic fund to the latter's beneficiary account with Citibank-
Cairo."39 It reasons that as respondent has failed to prove his
allegation that his telegraphic transfer funds were not received or
credited to his intended beneficiary's Citibank-Cairo account, the
Court of Appeals should have dismissed respondent's complaint.40
Instead, the Court of Appeals adjudged petitioner liable for
negligence: (1) when it did not immediately refund the telexed funds
to respondent upon receipt of the discrepancy notice from Citibank-
Cairo; and (2) when it did not immediately relay to Citibank-Cairo
respondent's demand for the cancellation of the
transaction.41 According to petitioner, this was erroneous because
the Court of Appeals ruled upon matters not alleged in the complaint
or raised as an issue42 and awarded damages not prayed for in the
complaint.43
Petitioner further argues that respondent demanded for the return of
his money long after-and not immediately after-he was informed of
the discrepancy in the beneficiary's name. Moreover, respondent
made the demand (1) only because he had changed his mind about
the tour because his wife was ill, (2) after he had personally known
that his beneficiary had received the transferred funds, and (3) to
avoid the 50% forfeiture penalty.44
Petitioner adds that Article 1172 of the Civil Code was erroneously
applied by the Court of Appeals because this provision refers to an
obligor's negligence in performing the obligation. Here, the "acts of
negligence" attributed to petitioner were those that transpired after it
had fully performed its obligation to transfer the funds.45
Finally, petitioner contends that the Court of Appeals erred "when it
unjustly enriched the respondent by making the petitioner liable to
refund the amount already legally transferred to, and received by
respondent's beneficiary, for his benefit."46
Respondent counters that the issues raised by petitioner are factual,
which are not reviewable by this Court.47 He further denies that he
disclosed to the petitioner that he was able to contact his travel
agency, which admitted that it had received the funds. On the
contrary, respondent avers that he "demanded for the return of his
money when the petitioner informed him that the funds could not be
deposited to the beneficiary account."48
The issues for resolution are:
First, whether the Court of Appeals erred in affirming the Regional
Trial Court's Decision, granting the refund of respondent's
US$430.00 telegraphic funds transfer despite its successful
remittance and credit to respondent's beneficiary Min Travel's
account with Citibank-Cairo;
Second, whether petitioner Chinatrust (Philippines) Commercial
Bank was negligent in the performance of its obligation under the
telegraphic transfer agreement; and
Finally, whether the subsequent acts of petitioner after
compliancewith its obligation can be considered "negligent" to justify
the award of damages by the Regional Trial Court, as affirmed by the
Court of Appeals.
I never raised in the Metropolitan Trial Court. Respondent's cause of
The Regional Trial Court and the Court of Appeals erred in holding
that petitioner was negligent in failing to immediately address
respondent's queries and return his money and was consequently
liable for the anguish suffered by respondent. They ruled on an issue
that was not raised by respondent in the lower court, thereby
violating petitioner's right to due process.
It is an established principle that "courts cannot grant a relief not
prayed for in the pleadings or in excess of what is being sought by
the party."49 The rationale for the rule was explained in Development
Bank of the Philippines v. Teston,50 where this Court held that it is
improper to enter an order which exceeds the scope of the relief
sought by the pleadings:
The Court of Appeals erred in ordering [Development Bank of the
Philippines] to return to respondent "the ₱l,000,000.00" alleged down
payment, a matter not raised in respondent's Petition for Review
before it. In Jose Clavano, Inc. v. Housing and Land Use Regulatory
Board, this Court held:
It is elementary that a judgment must conform to, and be supported
by, both the pleadings and the evidence, and must be in accordance
with the theory of the action on which the pleadings are framed and
the case was tried. The judgment must be secudum allegata et
probata.
Due process considerations justify this requirement. It is improper to
enter an order which exceeds the scope of relief sought by the
pleadings, absent notice which affords the opposing party an
opportunity to be heard with respect to the proposed relief. The
fundamental purpose of the requirement that allegations of a
complaint must provide the measure of recovery is to prevent
surprise to the defendant.51 (Emphasis supplied, citations omitted)
The bank's supposed negligence in the handling of respondent's
concerns was not among respondent's causes of action and was
action was based on the theory that the telexed funds transfer did
not materialize, and the relief sought was limited to the refund of his
money and damages as a result of the purported non-remittance of
the funds to the correct beneficiary account.52
"[T]he purpose of an action ... and the law to govern it ... is to be
determined . . . by the complaint itself, its allegations and the prayer
for relief."53 The complaint states "the theory of a cause of action
which forms the bases of the plaintiff's claim of liability."54
A review of the Complaint filed before the Metropolitan Trial Court
reveals that respondent originally sued upon a breach of contract
consisting in the alleged failure of petitioner to remit the funds to his
travel agency's account in Cairo-Egypt.
Respondent's cause of action was based on paragraphs 5 and 6 of
his Complaint:
5. That after a few days, the plaintiff verified from the defendant
whether the telegraphic transfer was sent but the plaintiff was told
that the fund was not applied to the intended account number and
name as "THE BENE TITLE DOES NOT MATCH WITH THEIR
BOOKS";
6. That the plaintiff talked with the President of the defendant and
asked what was meant by that and was told that they did not
succeed in sending the telegraphic transfer to the beneficiary
account[.]55
Respondent further alleged:
10. That because of the refusal of the defendant to return the
amounts given by the plaintiff, the latter suffered sleepless nights,
worry and anxiety because of his fear that he lost the money that he
entrusted to the defendant for transfer to the beneficiary account for
which the plaintiff should be awarded moral damages on the amount
of ₱20,000.00;
11. That the defendant was guilty of gross negligence in failing to
comply with its obligation to send the telegraphic transfer to the
intended beneficiary account;
12. That by way of example, the defendant should be ordered to pay
exemplary damages in the amount of ₱20,000.00.56 (Emphasis
supplied)
In both his Complaint and Position Paper,57 respondent anchored his
claim for refund and damages on the "discrepancy notice" and the
manager's explanation that the funds were not successfully credited
to the beneficiary's account. Respondent demanded for the return of
his money having the impression that the bank was not successful in
remitting it.
The parties' pleadings and position papers submitted before the
Metropolitan Trial Court raised the factual issue of whether petitioner
had complied with its obligation to remit the funds of the respondent
to his intended beneficiary's account with Citibank-Cairo. They
likewise raised the legal issue of whether respondent was entitled to
rescind the contract.
Furthermore, during the preliminary conference, the following issues
were defined: (a) "whether or not the amount was remitted to the
correct beneficiary's account," and (b) "whether or not the parties are
entitled to their respective claims."58 This does not include the issue
of negligence on the part of petitioner in attending to respondent's
queries or the purported one (1)-month delay in the confirmation of
the remittance.
The case was decided by the Metropolitan Trial Court pursuant to the
Revised Rules on Summary Procedure.59Accordingly, no trial was
conducted as, after the conduct of a preliminary conference, the
parties were made to submit their position papers.60 There was, thus,
no opportunity to present witnesses during an actual trial. However,
Section 9 of the Revised Rules on Summary Procedure calls for the
submission of witnesses' affidavits together with a party's position
paper after the conduct of a preliminary conference:
Section 9. Submission of Affidavits and Position Papers. - Within ten
(10) days from receipt of the order mentioned in the next preceding
section, the parties shall submit the affidavits of their witnesses and
other evidence on the factual issues defined in the order, together
with their position papers setting forth the law and the facts relied
upon by them.
The determination of issues at the preliminary conference bars the
consideration of other questions on appeal. 61This is because under
Section 9 above, the parties were required to submit their affidavits
and other evidence on the factual issues as defined in the
preliminary conference order. Thus, either of the parties cannot raise
a new factual issue on appeal, otherwise it would be unfair to the
adverse party, who had no opportunity to present evidence against it.
II
The Metropolitan Trial Court correctly absolved petitioner from
liability and dismissed the complaint upon its finding that the bank
had duly proven that it had complied with its obligation under the
telegraphic transfer. It found that despite the earlier advice of
Citibank-Cairo that the beneficiary name did not match their files,
Chinatrust and respondent Turner were subsequently informed that
the amount sent had been credited to the account of the beneficiary
as early as September 15, 2004.62
However, on appeal, the Regional Trial Court reversed the dismissal
of the complaint. While the Regional Trial Court affirmed the court a
quo's ruling that indeed the funds were credited to the intended
beneficiary's account, it went further and touched upon an issue that
was beyond the cause of action framed by the respondent. It
adjudged petitioner liable not because it failed to perform its
obligation to remit the funds but because it purportedly did not
exercise due diligence in attending to respondent's queries and
demands with regard to the telegraphic funds transfer. Specifically, it
found petitioner negligent in its failure to promptly inform respondent
that the money was, in fact, credited to the account of the
beneficiary.63 According to the Regional Trial Court, "it is but right
that the [petitioner] bank be held liable for the monetary loss, as well
as the emotional stresses and mental anguish that [respondent]
Turner had to go through as a result thereof."64 Hence, the Regional
Trial Court awarded respondent's claims for refund and damages.
The Regional Trial Court also faulted the petitioner for not submitting
in evidence the "discrepancy notice," which according to the trial
court "puts the ... bank's position in a cloud of doubt."65
Contrary to the observation of the Regional Trial Court, however, the
discrepancy notice's existence and content were not the core of the
controversy. In fact, they were never put in issue. The discrepancy
notice only came up because it was the basis for Turner's claim for
refund insisting that the funds were not credited to his travel agency's
account. Hence, it is understandable that both parties did not present
it in evidence.
Similarly, the purported negligence of the bank personnel in
attending to his concerns was neither raised by respondent in any of
his pleadings nor asserted as an issue in the preliminary conference.
Hence, it was improper for the Regional Trial Court to consider this
issue on negligence in determining the respective claims of the
parties.
Basic rules of fair play, justice, and due process require that
arguments or issues not raised in the trial court may not be raised for
the first time on appeal.66
In Philippine Ports Authority v. City of Iloilo:67
As a rule, a party who deliberately adopts a certain theory upon
which the case is tried and decided by the lower court will not be
permitted to change theory on appeal. Points of law, theories, issues
and arguments not brought to the attention of the lower court need
not be, and ordinarily will not be, considered by a reviewing court, as
these cannot be raised for the first time at such late stage. Basic
considerations of due process underlie this rule. It would be unfair to
the adverse party who would have no opportunity to present further
evidence material to the new theory, which it could have done had it
been aware of it at the time of the hearing before the trial court. To
permit petitioner in this case to change its theory on appeal would
thus be unfair to respondent, and offend the basic rules of fair play,
justice and due process.68 (Citations omitted)
There is more reason for a reviewing court to refrain from
resolving motu proprio an issue that was not even raised by a party.
This Court has previously declared that:
"[C]ourts of justice have no jurisdiction or power to decide a question
not in issue" and that a judgment going outside the issues and
purporting to adjudicate something upon which the parties were not
heard is not merely irregular, but extrajudicial and invalid.69 (Citations
omitted)
As pointed out earlier, respondent's cause of action was anchored on
the alleged non-remittance of the funds to his travel agency's
account or based on a breach of contract.
On appeal, however, the Regional Trial Court motu proprio found
that petitioner was negligent in addressing respondent's concerns,
which justified the award of damages against it. This was unfair to
petitioner who had no opportunity to introduce evidence to
counteract this new issue. The factual bases of this change of theory
would certainly require presentation of further evidence by the bank
in order to enable it to properly meet the issue raised.
III
The Regional Trial Court and the Court of Appeals erred in awarding
damages to respondent.
Petitioner was not remiss in the performance of its contractual
obligation to remit the funds. It was established that the funds were
credited to the account of Min Travel on September 15, 2004, or two
(2) days from respondent's application.70
Petitioner cannot likewise be faulted for the discrepancy notice sent
by Citibank-Cairo, assuming there was a mistake in its sending. It
merely relayed its contents to respondent. Citibank-Cairo is not an
agent of petitioner but a beneficiary bank designated by respondent,
upon the instruction of the beneficiary, Min Travel.
The Regional Trial Court, as affirmed by the Court of Appeals, found
petitioner negligent in addressing the concerns and queries of
respondent. It specifically faulted petitioner for failure to submit any
letters, tracers, cables, or other evidence of communication sent to
Citibank-Cairo to inquire about the status of the remittance and
adjudged petitioner liable for the anxieties suffered by respondent. 71
The rule that factual findings of the Court of Appeals are not
reviewable by this Court is subject to certain exceptions such as
when there is a misapprehension of facts and when the conclusions
are contradicted by the evidence on record.72 Here, there is
insufficient evidence to show negligence on the part of petitioner.
The one (1 )-month delay in receiving the telex reply from Citibank-
Cairo does not sufficiently prove petitioner's fault or negligence,
especially since "[p]etitioner's communications were coursed thru a
third-party-correspondent bank, Union Bank of Califomia."73
Furthermore, the lower courts overlooked the fact that respondent
knew all along, or as early as September 22, 2004, that his funds
were already received by his beneficiary. Despite this, he insisted on
demanding the retrieval of the funds after he opted not to pursue with
his travel abroad.
Respondent did not specifically deny paragraphs 8 and 9 of
petitioner's Answer with Counterclaims, which alleged the following:
8. However, on September 22, 2004, the Plaintiff, despite being
aware that his foregoing remittance was already received by the
beneficiary MIN TRAVEL, changed his mind, and stated that he will
no longer push though with his tour travel, and thus, requested for
the retrieval of said funds. Defendant relayed said request through
the foregoing channel to Citibank-Cairo. Considering that said fund
was already transferred, Citibank-Cairo refused to honor said
request, and consider the transmittal closed and accomplished;
9. Plaintiff, however, insisted on demanding refund of said amount
from the Defendant, who politely denied such demand, and
repeatedly explained to the Plaintiff that Citibank-Cairo will not honor
such request, and that there is nothing that the Defendant can do
under the circumstances[.]74
The Affidavit of Rosario C. Astrologo (Astrologo), Branch Service
Head, Chinatrust-Ayala Branch, was never rebutted by respondent
by submitting his counter evidence. Portions of it stated:
7. On September 22, 2004, when he visited our branch office, which
he has been doing almost everyday, he mentioned to our Ms. Rina
Chua, the bank's Senior Service Assistant, Ayala Branch, that he
[was] able to contact Mr. Esmat Azmy who already confirmed having
received the said remittance;
8. When I also talked to him, also on the same date, he, stated that
he changed his mind and will no longer push through with his said
travel because his wife, who is supposed to accompany him, became
sick, injured, or something to such effect. He also mentioned that if
he will cancel his travel agreement, the travel agency will only return
to him fifty [percent] (50%) of his foregoing down-payment, but if he
will be able to retrieve and withdraw such remittance from the bank,
he will only pay the bank charges, which is minimal. He, therefore,
insisted, that said fund be withdrawn and returned to him by the
bank;
9. He was also told that if such fund was already received by the
travel agency and credited to its bank account of said travel agency
at Citibank, it cannot be returned anymore, and I advised him to
contact his travel agency and negotiate for the refund of his entire
proceeds. I do not know if he later made such plea to his travel
agency for we were not told what happened later. I promised,
however, that we will relay his request for its retrieval of such fund to
Citibank, which we did thru various telexes[.]75
The successful remittance was later confirmed by the telex-reply
from Citibank-Cairo on October 28, 2004, stating that the funds were
credited to the account of Min Travel on September 15, 2004.76 This
telex-reply confirms that petitioner indeed made a follow up with
Citibank-Cairo regarding the status of respondent's funds.
Moreover, the refusal of petitioner's personnel to accede to
respondent's demand for a refund cannot be considered an
actionable wrong. Their refusal was due primarily to lack of
information or knowledge of the effective cancellation of the
remittance and not from a deliberate intent to ignore or disregard
respondent's rights. When respondent insisted on asking for the
refund, he was repeatedly requested to submit a certification or, at
least, a written denial from his beneficiary that the funds were not in
fact received. They cannot be faulted for wanting to verify with
Citibank-Cairo the status of the remittance before acting upon his
request, especially since the funds have actually been received by
Citibank-Cairo. The written denial would also be the basis for
petitioner's demand upon Citibank-Cairo.
The Court of Appeals erred in ruling that petitioner had the duty to
immediately return the money to Turner together with the service fee
upon the first instance that it relayed the discrepancy notice to him.
Turner could no longer rescind the telegraphic transfer agreement.
In Republic of the Philippines v. Philippine National Bank,77 thisCourt
described the nature of a telegraphic transfer agreement:
"[C]redit" in its usual meaning is a sum credited on the books of a
company to a person who appears to be entitled to it. It presupposes
a creditor-debtor relationship, and may be said to imply ability, by
reason of property or estates, to make a promised payment.
....
[A]s the transaction is for the establishment of a telegraphic or cable
transfer, the agreement to remit creates a contractual obligation and
has been termed a purchase and sale transaction (9 C.J.S. 368).
The purchaser of a telegraphic transfer upon making payment
completes the transaction insofar as he is concerned, though insofar
as the remitting bank is concerned the contract is executory until the
credit is established.78
Thus, once the amount represented by the telegraphic transfer order
is credited to the account of the payee or appears in the name of the
payee in the books of the receiving bank, the ownership of the
telegraphic transfer order is deemed to have been transmitted to the
receiving bank. The local bank is deemed to have fully executed the
telegraphic transfer and is no longer the owner of this telegraphic
transfer order.
It is undisputed that on September 13, 2004, the funds were remitted
to Citibank-New York through petitioner's paying bank, Union Bank
of California. Citibank-New York, in turn, credited Citibank-Cairo,
Egypt, Heliopolis Branch.
Moreover, it was established that the amount of US$430.00 was
actually credited to the account of Min Travel on September 15,
2004,79 or merely two (2) days after respondent applied for the
telegraphic transfer and even before petitioner received its
"discrepancy notice" on September 17, 2004. Chinatrust is, thus,
deemed to have fully executed the telegraphic transfer agreement
and its obligation to respondent was extinguished.80 Hence,
respondent could no longer ask for rescission of the agreement' on
September 22, 2004.
When the funds were credited to the account of Min Travel at
Citibank-Cairo, ownership and control of these funds were
transferred to Min Travel.1âwphi1 Thus, the funds could not be
withdrawn without its consent.
The Court of Appeals, in affirming the decision of the Regional Trial
Court, held that petitioner was obliged to immediately return the
money to respondent as early as September 17, 2004 when it
received the "discrepancy notice" from Citibank-Cairo.81 It held that
petitioner's failure to do so even upon respondent's demand
constituted an actionable negligence under Article 1172.82
The Court of Appeals misappreciated the true import of the
discrepancy notice when it held that the notice was an "effective
cancellation of the remittance by the Citibank-Cairo"83 that gave rise
to the legal obligation of petitioner to return the funds to respondent.
The discrepancy notice does not mean that the funds were not
received by the beneficiary bank. On the contrary, what it implies is
that these funds were actually received by Citibank-Cairo but it could
not apply it because the account name of the beneficiary indicated in
the telex instruction does not match the account name in its books. In
short, it cannot find in its file the beneficiary account name "Min
Travel/Esmat Azmy" pursuant to the telex instruction, for which
reason, Citibank-Cairo asked for clarifications. Petitioner, in turn, had
to clarify from respondent, because it was respondent himself, upon
instruction of his travel agency, who indicated such beneficiary's
name in his telegraphic transfer form. True enough, as later shown,
the beneficiary account name was not '"Min Travel/Esmat Azmy" but
only "Min Travel." Petitioner, therefore, had nothing to do with the
mismatch of the beneficiary name and could not be made liable for it.
The information initially relayed by Citibank-Cairo and received by
petitioner on September 17, 2004-that the funds were not applied to
the intended account because the beneficiary name did not match its
books-proved to be no longer true. This is because Citibank-Cairo
later confirmed that respondent's remittance was duly credited to the
account of Min Travel on September 15, 2004.
As stated earlier, respondent's request for retrieval of the funds was
because he changed his mind about the travel rather than the
discrepancy notice sent by Citibank-Cairo. The Affidavit of Astrologo
was never refuted.
The tour travel arrangement, which brought about the remittance of
the funds, is a separate and private arrangement between
respondent and Min Travel. Respondent's change of mind and claim
for refund, therefore, should have been properly addressed to Min
Travel: which already had possession of the funds and not to
petitioner, who was not privy to the arrangement.
WHEREFORE, the Petition is GRANTED. The Court of Appeals'
Decision dated December 14, 2009 and Resolution dated March 2,
2010 are set aside and the Decision dated January 15, 2006 of the
Metropolitan Trial Court, Branch 61, Makati City is reinstated.
G.R. No. 211170
SPOUSES MAXIMO ESPINOZA and WINIFREDA DE
VERA, Petitioners
vs.
SPOUSES ANTONIO MAYANDOC and ERLINDA CAYABYAB
MAYANDOC, Respondents
 DECISION
PERALTA, J.:
Before this Court is the Petition for Review on Certiorari under Rule
45, dated March 21, 2014, of petitioners-spouses Maximo Espinoza
and Winifreda De Vera, that seeks to reverse and set aside the
Decision1 dated September 17, 2013 and Resolution dated January
28, 2014, both of the Court of Appeals (CA) which, in turn, affirmed
with modifications the Decision2 dated February 18, 2011 of the
Regional Trial Court (RTC), Branch 42, Dagupan City, in a complaint
for useful expenses under Articles 4483 and 5464 of the New Civil
Code of the Philippines.
The facts follow.
A parcel of land located in Dagupan City was originally owned by
Eusebio Espinoza. After the death of Eusebio, the said parcel of land
was divided among his heirs, namely: Pastora Espinoza, Domingo
Espinoza and Pablo Espinoza. Petitioner Maximo is the son of
Domingo Espinoza, who died on November 3, 1965, and Agapita
Cayabyab, who died on August 11, 1963.
Thereafter, on May 25, 1972, Pastora Espinoza executed a Deed of
Sale conveying her share of the same property to respondents and
Leopoldo Espinoza. However, on that same date, a fictitious deed of
sale was executed by petitioner Maximo's father, Domingo Espinoza,
conveying the three-fourth (3/4) share in the estate in favor of
respondent Erlinda Cayabyab Mayandoc's parents; thus, TCT No.
28397 was issued in the names of the latter.
On July 9, 1977, a fictitious deed of sale was executed by Nemesio
Cayabyab, Candida Cruz, petitioners-spouses Maximo Espinoza and
Winifreda De Vera and Leopoldo Espinoza over the land in favor of
respondents- spouses Antonio and Erlinda Mayandoc; thus, TCT No.
37403 was issued under the names of the latter.
As a result of the foregoing, petitioners filed an action for annulment
of document with prayer for the nullification of TCT No. 37403 and,
on August 16, 1999, the RTC, Branch 40, Dagupan City rendered a
Decision in favor of petitioners and ordering respondents to reconvey
the land in dispute and to pay attorney's fees and the cost of the suit.
Respondents appealed, but the CA, in its Decision dated February 6,
2004, affirmed the RTC with modifications that the award of
attorney's fees and litigation expenses be deleted for lack of factual
basis. The said CA Decision became final and executory on March 8,
2004.
Thus, respondents filed a complaint for reimbursement for useful
expenses, pursuant to Articles 448 and 546 of the New Civil Code,
alleging that the house in question was built on the disputed land in
good faith sometime in 1995 and was finished in 1996. According to
respondents, they then believed themselves to be the owners of the
land with a claim of title thereto and were never prevented by the
petitioners in constructing the house. They added that the new house
was built after the old house belonging to respondent Erlinda
Mayandoc's father was torn down due to termite infestation and
would not have reconstructed the said house had they been aware of
the defect in their title. As such, they claimed that they are entitled to
reimbursement of the construction cost of the house in the amount of
₱800,000.00. They further asserted that at the time that their house
was constructed, they were possessors in good faith, having lived
over the land in question for many years and that petitioners
questioned their ownership and possession only in 1997 when a
complaint for nullity of documents was filed by the latter.
Petitioners, in their Answer, argued that respondents can never be
considered as builders in good faith because the latter were aware
that the deeds of sale over the land in question were fictitious and,
therefore, null and void; thus, as builders in bad faith, they lose
whatever has been built over the land without right to indemnity.
Respondents, on January 5, 2011, manifested their option to buy the
land where the house stood, but petitioners expressed that they were
not interested to sell the land or to buy the house in question.
The RTC, on February 18, 2011, rendered its Decision with the
following dispositive portion:
WHEREFORE, judgment is hereby rendered requiring the
defendants to sell the land, where the plaintiffs' house stands, to the
latter at a reasonable price based on the zonal value determined by
the Bureau of Internal Revenue (BIR).
SO ORDERED.5
Petitioners appealed to the CA, but the latter, in its Decision dated
September 17, 2013, affirmed the decision of the RTC with
modifications. The dispositive portion of the Decision reads:
WHEREFORE, the Decision dated February 18, 2011 by the
Regional Trial Court, Branch 42 of Dagupan City, in Civil Case No.
2005- 0271-D is hereby AFFIRMED with MODIFICATIONS.
Let the case be REMANDED to the aforementioned trial court for
further proceedings consistent with the proper application of Articles
448, 546 and 548 of the New Civil Code and to render a complete
judgment of the case.
SO ORDERED.6
The motion for reconsideration of petitioners were subsequently
denied by the CA in its Resolution dated January 28, 2014.
Hence, the present petition.
Petitioners raise the following issues:
I.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT THE PETITIONERS WERE NOT ABLE TO PROVE
BAD FAITH ON THE PART OF THE RESPONDENTS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT RES JUDJCATA DOES NOT APPLY IN
THE INST ANT CASE.
According to petitioners, whether or not respondents were in bad
faith in introducing improvements on the subject land is already
moot, since the judgment rendered by the RTC of Dagupan City,
Branch 40 and affirmed by the CA, that declared the two Deeds of
Definite/ Absolute Sale dated May 25, 1972 and July 9, 1977 as null
and void, had long become final and executory on March 8, 2004.
They also argue that respondents had not successfully shown any
right to introduce improvements on the said land as their claim of
laches and acquisitive prescription have been rejected by the CA on
appeal; thus, it follows that the respondents were builders in bad faith
because knowing that the land did not belong to them and that they
had no right to build thereon, they still caused the house to be
erected. They further insist that respondents are deemed builders in
bad faith because their house has been built and reconstructed into
a bigger one after respondent Erlinda's parents forged a fictitious
sale. Finally, they claim that the principle of res judicata in the mode
of "conclusiveness of judgment" applies in this case.
The petition lacks merit.
The findings of facts of the Court of Appeals are conclusive and
binding on this Court7 and they carry even more weight when the
said court affirms the factual findings of the trial court. 8 Stated
differently, the findings of the Court of Appeals, by itself, which are
supported by substantial evidence, are almost beyond the power of
review by this Court.9 Although this rule is subject to certain
exceptions, this Court finds none that is applicable in this case.
Nevertheless, the petition still fails granting that an exception obtains.
To be deemed a builder in good faith, it is essential that a person
asserts title to the land on which he builds, i.e., that he be a
possessor in the concept of owner, and that he be unaware that
there exists in his title or mode of acquisition any flaw which
invalidates it.10 The RTC, as affirmed by the CA, found respondents
to be builders in good faith, thus:
The plaintiffs are builders in good faith. As asserted by plaintiffs and
not rebutted by defendants, the house of plaintiffs was built on the lot
owned by defendants in 1995. The complaint for nullity of documents
and reconveyance was filed in 1997, about two years after the
subject conjugal house was constructed. Defendants-spouses
believed that at the time when they constructed their house on the lot
of defendants, they have a claim of title. Art. 526, New Civil Code,
states that a possessor in good faith is one who has no knowledge of
any flaw or defect in his title or mode of acquisition. This determines
whether the builder acted in good faith or not. Surely, plaintiffs would
not have constructed the subject house which plaintiffs claim to have
cost them ₱800,000.00 to build if they knew that there is a flaw in
their claim of title. Nonetheless, Art. 527, New Civil Code, states
clearly that good faith is always presumed, and upon him who
alleges bad faith on the part of the possessor lies the burden of
proof. The records do not show that the burden of proof was
successfully discharged by the defendants.
xxxx
Plaintiffs are in good faith in building their conjugal house in 1995 on
the lot they believed to be their own by purchase. They also have in
their favor the legal presumption of good faith. It is the defendants
who had the burden to prove otherwise. They failed to discharge
such burden until the Regional Trial Court, Br. 40, Dagupan City,
promulgated an adverse ruling in Civil Case No. 97-0187-D. Thus,
Art. 448 comes in to protect the plaintiffs-owners of their
improvement without causing injustice to the lot owner. Art. 448
comes in to protect the plaintiff-owners of their improvement without
causing injustice to the lot owner. Art. 448 provided a just resolution
of the resulting "forced-ownership" by giving the defendants lot
owners the option to acquire the conjugal house after payment of the
proper indemnity or to oblige the builder plaintiffs to pay for the lot. It
is the defendants-lot owners who are authorized to exercise the
option as their right is older, and under the principle of accession
where the accessory (house) follows the principal. x x x.11
The settled rule is bad faith should be established by clear and
convincing evidence since the law always presumes good faith.12 In
this particular case, petitioners were not able to prove that
respondents were in bad faith in constructing the house on the
subject land. Bad faith does not simply connote bad judgment or
negligence.13 It imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong.14 It means breach of a known duty
through some motive, interest or ill will that partakes of the nature of
fraud.15 For anyone who claims that someone is in bad faith, the
former has the duty to prove such. Hence, petitioners err in their
argument that respondents failed to prove that they are builders in
good faith in spite of the findings of the RTC and the CA that they
are.
As such, Article 44816 of the Civil Code must be applied. It applies
when the builder believes that he is the owner of the land or that by
some title he has the right to build thereon,17 or that, at least, he has
a claim of title thereto.18 In Tuatzs v. Spouses Escol, et al.,19 this
Court ruled that the seller (the owner of the land) has two options
under Article 448: (1) he may appropriate the improvements for
himself after reimbursing the buyer (the builder in good faith) the
necessary and useful expenses under Articles 54620 and 54821 of the
Civil Code; or (2) he may sell the land to the buyer, unless its value is
considerably more than that of the improvements, in which case, the
buyer shall pay reasonable rent, thus:
The rule that the choice under Article 448 of the Civil Code belongs
to the owner of the land is in accord with the principle of
accession, i.e., that the accessory follows the principal and not the
other way around. Even as the option lies with the landowner, the
grant to him, nevertheless, is preclusive. The landowner cannot
refuse to exercise either option and compel instead the owner of the
building to remove it from the land.
The raison d'etre for this provision has been enunciated thus: Where
the builder, planter or sower has acted in good faith, a conflict of
rights arises between the owners, and it becomes necessary to
protect the owner of the improvements without causing injustice to
the owner of the land. In view of the impracticability of creating a
state of forced co-ownership, the law has provided a just solution by
giving the owner of the land the option to acquire the improvements
after payment of the proper indemnity, or to oblige the builder or
planter to pay for the land and the sower the proper rent. He cannot
refuse to exercise either option. It is the owner of the land who is
authorized to exercise the option, because his right is older, and
because, by the principle of accession, he is entitled to the
ownership of the accessory thing.22
The CA, therefore, did not err in its ruling that instead of requiring the
petitioners to sell the land, the R TC must determine the option which
the petitioners would choose.1âwphi1 As aptly ruled by the CA:
The rule that the right of choice belongs to the owner of the land is in
accordance with the principle of accession. However, even if this
right of choice is exclusive to the land owner, he cannot refuse to
exercise either option and demand, instead for the removal of the
building.
Instead of requiring defendants-appellants to sell the land, the
court a quo must determine the option which they would choose. The
first option to appropriate the building upon payment of indemnity or
the second option, to sell the land to the plaintiffs-appellees.
Moreover, the court a quo should also ascertain: (a) under the first
option, the amount of indemnification for the building; or (b) under the
second option, the value of the subject property vis-a-vis that of the
building, and depending thereon, the price of, or the reasonable rent
for, the subject prope1iy.
Hence, following the ruling in the recent case of Briones v.
Macabagdal, this case must be remanded to the court a quo for the
conduct of further proceedings to assess the current fair market of
the land and to determine other matters necessary for the proper
application of Article 448, in relation to Articles 546 and 548 of the
New Civil Code.23
Therefore, this Court agrees with the CA that there is a need to
remand the case to the RTC for further proceedings, specifically, in
assessing the current fair market value of the subject land and other
matters that are appropriate in the application of Article 448, in
relation to Articles 546 and 548 of the New Civil Code.
As to the issue of res judicata, the CA is correct in its ruling that there
is no identity of subject matter and cause of action between the prior
case of annulment of document and the present case, thus:
In the instant case, res judicata will not apply since there is no
identity of subject matter and cause of action. The first case is for
annulment of document, while the instant case is for reimbursement
of useful expenses as builders in good faith under article 448 in
relation to Articles 546 and 548 of the New Civil Code.
Moreover, We are not changing or reversing any findings of the RTC
and by this Court in Our 6 February 2004 decision. The Court is still
bound by this judgment insofar as it found the Deeds of Absolute
Sale null and void, and that defendants-appellants are the rightful
owners of the lot in question.
However, if the court a quo did not take cognizance of the instant
case, plaintiffs-appellees shall lose ownership of the building worth
Php316,400.00 without any compensation. While, the defendant-
appellants not only will recover the land but will also acquire a house
without payment of indemnity. The fairness of the rules enunciated in
Article 448 is explained by the Supreme Court in the case of Depra v.
Dumlao, viz.:
Where the builder, planter or sower has acted in good faith, a conflict
of rights arises between the owners, and it becomes necessary to
protect the owner of the improvements without causing injustice to
the owner of the land. In view of the impracticability of creating a
state of forced ownership, the law has provided a just solution by
giving the owner of the land the option to acquire the improvements
after payment of the proper indemnity, or to oblige the builder or
planter to pay for the land and the sower to pay the proper rent. It is
the owner of the land who is authorized to exercise the option,
because his right is older, and because, by the principle of
accession, he is entitled to the ownership of the accessory thing.
Finally, "the decision of the court a quo should not be viewed as a
denigration of the doctrine of immutability of final judgments, but a
recognition of the equally sacrosanct doctrine that a person should
not be allowed Io profit or enrich himself inequitably at anal her's
expense."24
The well-settled rule is that the principle or rule of res judicata is
primarily one of public policy. It is based on the policy against
multiplicity of suits,26 whose primary objective is to avoid unduly
burdening the dockets of the courts.27In this case, however, such
principle is inapplicable.
WHEREFORE, the Petition for Review on Certiorari under Rule 45,
dated March 21, 2014, of petitioners-spouses Maximo Espinoza and
Winifreda De Vera, is DENIED. Consequently, the Decision dated
September 17, 2013 and Resolution dated January 28, 2014, both of
the Court of Appeals are AFFIRMED.
SO ORDERED.
Assailed in these consolidated Petitions for Review on Certiorari is
the Decision1 dated September 21, 2011 of the Court of Appeals
(CA), in CA-G.R. SP. No. 115493. The CA Decision affirmed in part
the National Labor Relations Commission's (NLRC) March 30, 2010
Resolution,2 which in turn affirmed the Labor Arbiter's (LA) June 30,
2009 Decision3 finding that the Philippine National Bank (PNB)
effected a valid redundancy program.
The case stemmed from a complaint for illegal dismissal,
underpayment of separation pay and retirement benefits, illegal
deduction, nonpayment of provident fund with prayer for damages
and attorney's fees filed by Jumelito T. Dalmacio (Dalmacio) and
Emma R. Martinez (Martinez)4 as a result of their separation from
PNB way back September 15, 2005 due to PNB's implemention of its
redundancy program. Dalmacio and · Martinez were hired as utility
worker and communication equipment operator, respectively, by the
National Service Corporation, a subsidiary of PNB. Years later,
Dalmacio became an Information Technology (IT) officer of PNB,
while Martinez became a Junior IT Field Analyst.

In her June 30, 2009 Decision,5 LA Romelita N. Rioflorido ruled that

G.R. No. 202308
PNB complied with the law and jurisprudence in terminating the
services of the complainants on the ground of redundancy.
PHILIPPINE NATIONAL BANK, Petitioner
vs.
On appeal, the NLRC, in its March 30, 2010 Resolution,6 affirmed the
JUMELITO T. DALMACIO, Respondent
LA's Decision, and ruled that there is no showing of bad faith on
PNB's part in undertaking the redundancy program.
x-----------------------x
Dalmacio and Martinez's Motion for Reconsideration having been
G.R. No. 202357 denied by the NLRC, Dalmacio filed a Petition for Certiorari with the
CA.
JUMELITO T. DALMACIO, Petitioner,
vs. In its September 21, 2011 Decision,7 the CA affirmed in part the ·
PHILIPPINE NATIONAL BANK and/or MS. CYNTHIA March 30, 2010 Resolution of the NLRC, and ruled, among others,
JAVIER, Respondents. that, "principles of justice and fair play call for the modification of the
separation package already received by herein petitioner. x x x the
DECISION subtraction of the GSIS Gratuity Pay is inappropriate, therefore the
same should be returned to the petitioner."
TIJAM, J.:
Aggrieved, both parties appealed the Decision of the CA.
In his appeal,8 Dalmacio argues that: the CA erred in (1) upholding
the validity of PNB's redundancy program; (2) failing to rule that
PNB's computation of his separation pay is erroneous; and, (3) ruling
that the Deed of Quitclaim and Release which he signed militates
against his reinstatement.
For its part, PNB argues that:9 (1) The CA. erred in the exercise of its
equity jurisdiction despite the clear and limited scope of its
jurisdiction in a special civil action of certiorari; and, (2) it was
baseless for the CA to order the return to Dalmacio of his GSIS
Gratuity Pay.
Both Petitions are denied.
Essentially, the issues to be resolved in this case are: (1) Whether or
not PNB validly implemented its redundancy program; and, (2)
Whether or not the CA correctly ordered PNB to return Dalmacio's
GSIS Gratuity Pay.
This Court resolves only questions of law; it does not try facts or
examine testimonial or documentary evidence on record.10 We may
have at times opted for the relaxation of the application of procedural
rules, but we have resorted to this option only under exceptional
circumstances.11 This Court, however, finds no justification to warrant
the application of any exception to the general rule in this case.
It bears stressing that the LA, the NLRC, and the CA, all ruled that
PNB validly effected its redundancy program. The CA held that:
[A]s aptly found by the labor tribunals, the redundancy program was
an exercise of a sound business judgment which We ought to
respect and is beyond the ambit of Our review powers absent any
showing that it is violative of the Labor Code provisions or the
general principles of fair play andjustice.12
Such being the case, factual findings of quasi-judicial bodies like the
NLRC, particularly when they coincide with those of the LA and, if
supported by substantial evidence, are accorded respect and even
finality by this Court.13Thus, absent a showing of an error of law
committed by the court or tribunal below, or of a whimsical or
capricious exercise of judgment, or a demonstrable lack of basis for
its conclusions, this Court may not disturb its factual findings.
However, at the risk of being repetitive, We make short shrift of
Dalmacio's insistence that PNB's redundancy program was not valid.
We cannot subscribe to his claim that PNB did not apply fair and
reasonable criteria in concluding that Dalmacio's position had
become redundant.
One of the authorized causes14 for the dismissal of an employee is
redundancy.15 It exists when the service capability of the workforce is
in excess of what is reasonably needed to meet the demands of the
business enterprise.16 A position is redundant when it is superfluous,
and superfluity of a position or positions could be the result of a
number of factors, such as the overhiring of workers, a decrease in
the volume of business or the dropping of a particular line or service
previously manufactured or undertaken by the enterprise.17 Time and
again, it has been ruled that an employer has no legal obligation to
keep more employees than are necessary for the operation of its
business.18 For the implementation of a redundancy program to be
valid, however, the employer must comply with the following
requisites: (1) written notice served on both the employees and the
Department of Labor and Employment (DOLE) at least one month
prior to the intended date of termination of employment; (2) payment
of separation pay equivalent to at least one month pay for every year
of service; (3) good faith in abolishing the redundant positions; and
(4) fair and reasonable criteria in ascertaining what positions are to
be declared redundant and accordingly abolished,19 taking into
consideration such factors as (a) preferred status; (b) efficiency; and
(c) seniority, among others.20
In the case at bar, PNB was upfront with its employees about its plan
to implement its redundancy program. The LA correctly observed
that:
[I]t is undisputed that the outsourcing of the service and maintenance
of the Bank's computer hardware and equipment to Technopaq, Inc.
was devised and/or implemented after consultation with the affected
employees in the presence of their union officers between July 29
and August 5, 2005.21
This was echoed by the NLRC, thus:
Respondents were able to show substantial proof that it underwent
redundancy program and that complainants herein voluntarily
accepted the Special Redundancy Package offered by respondent
bank to its employees. In fact, they were officially notified of the
management's decision to terminate their employment as early as
August 15, 2005 x x x; and Complainants and their union officers
were even consulted of the respondent's decision to terminate its
employees on [the] ground of redundancy between July 29 and
August 5, 2005. Complainants agreed and accepted the decision. x x
x.22
Even the CA intoned that:
Even after he ceased working with private respondent PNB,
petitioner was not left jobless as he readily accepted a job offer with
Technopaq who employed him for three years. Only after he ceased
working with Technopaq that he conveniently filed a case for illegal
dismissal against PNB claiming other monetary benefits allegedly
due him and after receiving substantial amount of separation pay.
Hence this Court suspects the timing and intention of petitioner in
filing the complaint for illegal dismissal.23
Likewise, PNB's redundancy program was neither unfair nor
unreasonable considering that it was within the ambit of its
management prerogative. As the CA observed:
PNB's action is within the ambit of "management prerogative" to
upgrade and enhance the computer system of the bank. Petitioner,
being an IT officer whose job is to maintain the computer system of
PNB, his position has become patently redundant upon PNB's
engagement of the contract service with Technopaq. x x x he was
appositely informed of PNB's move to contract the services of
Technopaq and as a result thereof, there were positions that were
declared redundant including that of herein petitioner. x x x PNB
conducted series of meetings with herein petitioner and other
affected employees to purposely look for placement of the displaced
employees to other positions suited for them. Finding no other
alternative, PNB was constrained to terminate herein petitioner who
thereafter posed no objection thereto, consented to and willingly
received the hefty separation pay given to him. Moreover, records
have it that PNB faithfully complied with the legal procedures
provided under Article 283 of the Labor Code as evidenced by the
individual notices of termination served and received by the petitioner
as well as the Establishment Termination Report filed by PNB with
the Department of Labor.x x x.24
These factual findings evidently rule out Dalmacio's claim that PNB's
redundancy program was unfair and unreasonable and that PNB
acted in bad faith in the implementation of the same.
Likewise, records show that PNB complied with the procedural
requirements. PNB served Dalmacio and Martinez Notices of
Termination dated August 15, 2005, informing them that their
termination due to redundancy shall be effective September 15,
2005. PNB also filed an Establishment Termination Report dated
August 16, 2005 with the Regional Office of the DOLE, in order to
report complainants' termination.
Contrary to Dalmacio's claim, the CA did not err in ruling that the
Deed of Quitclaim and Release he signed militates against his
reinstatement.1âwphi1
Generally, deeds of release, waiver or· quitclaims cannot bar
employees from demanding benefits to which they are legally entitled
or from contesting the legality of their dismissal since quitclaims are
looked upon with disfavor and are frowned upon as contrary to public
policy.25 Where, however, the person making the waiver has done so
voluntarily, with a full understanding thereof, and the consideration
for the quitclaim is credible and reasonable, the transaction must be
recognized as being a valid and binding undertaking.26
The requisites for a valid quitclaim are: (1) that there was no fraud or
deceit on the part of any of the parties; (2) that the consideration for
the quitclaim is credible and reasonable; and (3) that the contract is
not contrary to law, public order, public policy, morals or good
customs or prejudicial to a third person with a right recognized by
law.27
Not having sufficiently proved that he was forced to sign said Deed of
Quitclaim and Release, Dalmacio cannot expediently argue that
quitclaims are looked upon with disfavor and considered ineffective
to bar claims for the full measure of a worker's legal rights. Indeed, it
cannot even be said that Dalmacio did not fully understand the
consequences of signing the Deed of Quitclaim and Release. He is
not an illiterate person who needs special protection. He held a
responsible position at PNB as an IT officer. It is thus safe to say that
he understood the contents of the Deed of Quitclaim and Release.
There is also no showing that the execution thereof was tainted with
deceit or coercion. Although he claims that he was "forced to
sign"28 the quitclaim, he nonetheless signed it. In doing so, Dalmacio
was compelled by his own personal circumstances, not by an act
attributable to PNB.
Having settled the foregoing, this Court shall now address the issue
on Dalmacio's GSIS Gratuity Pay.
A cursory reading of PNB's computation as regards Dalmacio's
separation package appearing in its Petition would clearly show that,
indeed, his GSIS Gratuity Pay has been deducted from· his
separation pay. This should not be countenanced.
As correctly pointed out by the CA:
[U]nder the GSIS law, a government employee is required to take off
a small part of his income and remit the same to the GSIS as his
monthly contributions. Considering such mandatory deductions, it is
but fitting that such gratuity pay is deemed separate and distinct from
his separation package and should not be deducted therefrom. x x
x.29
Clearly, Dalmacio is entitled to his GSIS ·Gratuity Pay. Contrary to
PNB's assertion, giving Dalmacio what is due him under the law is
not unjust enrichment.30
The inflexible rule in our jurisdiction is that social legislation must be
liberally construed in favor of the beneficiaries.31 Retirement laws, in
particular, are liberally construed in favor of the retiree because their
objective is to provide for the retiree's sustenance and, hopefully,
even comfort, when he no longer has the capability to earn a
livelihood.32 The liberal approach aims to achieve the humanitarian
purposes of the law in order that efficiency, security, and well-being
of government employees may be enhanced.33 Indeed, retirement
laws are liberally construed and administered in favor of the persons
intended to be benefited, and all doubts are resolved in favor of the
retiree to achieve their humanitarian purpose.34
WHEREFORE, the petitions are DENIED. The September 21, 2011
Decision of the Court of Appeals in CA-G.R. SP. No. 115493,
is AFFIRMED in toto.
SO ORDERED.
G.R. No. 201018
UNITED COCONUT CHEMICALS, G.R. NO. 201018,
INC., Petitioner
vs.
VICTORIANO B. V ALMORES, Respondent
DECISION
BERSAMIN, J.:
The base figure in the determination of full backwages is fixed at the
salary rate received by the employee at the time he was illegally
dismissed. The award shall include the benefits and allowances
regularly received by the employee as of the time of the illegal
dismissal, as well as those granted under the Collective Bargaining
Agreement (CBA), if any.
The Case
The petitioner United Coconut Chemicals, Inc. (UCCI) appeals the
decision promulgated on August 23, 2011,1whereby the Court of
Appeals (CA) upheld the order of the National Labor Relations
Commission (NLRC)2 to remand the case to the Labor Arbiter for the
re-computation of the respondent's full backwages.
Antecedents
UCCI hired the respondent as its Senior Utilities Inspector with a
monthly salary of ₱ll,194.00. He then became a member of the
United Coconut Chemicals, Inc. Employees' Labor Organization
(UELO) until his expulsion sometime in 1995.3 Due to the expulsion,
UELO formally demanded that UCCI terminate the services of the
respondent pursuant to the union security clause of the CBA. UCCI
dismissed him on February 22, 1996.4 He then filed a complaint for
illegal dismissal in the NLRC.5 After due proceedings, the Labor
Arbiter dismissed his complaint for lack of merit.6 On appeal,
however, the NLRC reversed the Labor Arbiter and disposed as
follows:
WHEREFORE, premises considered, the appeal is GRANTED. The
Decision appealed from is SET ASIDE and a new one entered
finding respondents liable for illegal dismissal and ordered them to
reinstate complainant to his former position without loss of seniority
rights and with full backwages from the date of dismissal on 22
February 1996 to the date of actual reinstatement.
SO ORDERED.7
The parties, including UELO, moved for reconsideration. The NLRC
denied the motions for reconsideration of the respondent and UELO,
but partially granted UCCI's motion by granting its prayer to be
exempted from paying backwages.8
Consequently, the respondent and UELO separately elevated the
matter to the CA on certiorari, insisting that the NLRC thereby
committed grave abuse of discretion amounting to lack or excess of
jurisdiction.
On January 18, 2002,9 the CA promulgated its decision disposing as
follows:
WHEREFORE, foregoing considered, the DECISION of the Third
Division of NLRC dated November 29, 2000 is AFFIRMED in all
respect.
The Resolution of the Third Division of NLRC dated January 31,
2001 which states:
"The motion for reconsideration filed by respondent United Coconut
Chemicals from the decision of November 29, 2000 is partially
GRANTED in that it is not held liable insofar as the award of full
backwages in favor of complainant is concerned."
is ordered DELETED and declared null and void.
SO ORDERED.10
Still, UCCI appealed to the Court, which, on November 17, 2003,
denied the petition for review on certiorari.11 The denial became final
and executory on February 26, 2004;12 hence, the respondent
moved for the execution of the judgment in his favor.
On January 18, 2010, Labor Arbiter Michaela A. Lontoc issued an
order decreeing thusly:
WHEREFORE, respondent [UCCI's] motion to hold respondent
UELO primarily liable to pay complainant the herein monetary
awards and/or direct respondent UELO to reimburse [UCCI] of
whatever amount it may be made to pay complainant, disguised as a
motion for clarification, is DENIED for lack of legal basis.
 Complainant's motion for execution dated 29 November 2000 1999 15,314.00 35.00 300.00 2,500.00 4,000.00 5,500.00
is GRANTED. Let a writ of execution be issued for its immediate
implementation. 2000 15,314.00 37.00 300.00 2,500.00 4,000.00 5,500.00
2001 16,314.00 37.00 300.00 2,500.00 4,000.00 5,500.00
SO ORDERED.13
2002 17,314.00 37.00 300.00 2,500.00 4,000.00 5,500.00
Labor Arbiter Lontoc opined that the backwages due to the
2003 19,064.00 40.00 500.00 2,500.00 4,000.00 6,500.00
respondent should be computed by excluding the benefits under the
CBA, to wit: 2004 20,564.00 40.00 500.00 2,600.00 4,000.00 6,500.00

In fine, we compute the backwages of complainant beginning 22 2005 22,564.00 40.00 500.00 2,600.00 5,000.00 10,000.00
February 1996 as directed in the 29 November 2000 decision of the2006 24,564.00 40.00 500.00 2,600.00 5,000.00 10,000.00
NLRC up to 30 June 2008. Complainant was admittedly reinstated to
work effective on 01 July 2008, with the corresponding wages 2007 26,614.00 40.00 500.00 2,600.00 5,000.00 10,000.00
beginning said period paid and received by complainant until he was
declared in AWOL and consequently terminated from work. Thus;
One-time CBA increase 2000 ₱20,000.00
Backwages: ₱l 1,194.00 x 148.26 months = ₱l,659,622.44
Built-in OT/NSD ₱5,044.29/annum
13th Month Pay: ₱l,659,622.44 I 12 months = ₱138,301.87
Other bonuses ₱5,000/annum
SILP: ₱l 1,194.00 30 days x 5 days/12 mos. Rice subsidy one sack I month
x 148.26 mos.= ₱23,050.31
Uniform ₱8,765.00 monetary
TOTAL ₱l,820,974.62 equivalent/annum
Christmas package ₱l,000.00 I annum
We do not neglect that in some of complainant's pleadings, he
VL/SL
offered the computation of his backwages, which included a list of 46 days I annum
the benefits he claimed should be included, thus:

Monthly Meal Safety Financial We cannot recognize these alleged CBA granted benefits. While the
Medical
SOFA term "backwages" used in Article 279 of the Labor Code includes the
Wage Subsidy Incentive Pay Grant Assistance
benefits which the complainant should have received had he not
1996 11,194.00 22.50 --- 1,000.00 2,500.00 3,800.00
been dismissed from work, benefits which are not prescribed by law
of those referring to benefits granted by the employer either pursuant
1997 12,444.00 25.00 --- 1,000.00 2,500.00 3,800.00
to the CBA or its benevolence, cannot be recognized unless duly
1998 13,814.00 35.00 300.00 2,500.00 4,000.00 proved. The decision dated 29 November 2000, which is the subject
5,500.00
of the instant execution proceedings, did not recognize the foregoing
alleged CBA and company issued benefits, although they were
enumerated by complainant in his position paper. Neither did we find
the basis of these alleged CBA negotiated benefits. While
complainant attached a few pages of what purports to be their
collective bargaining agreement, the effectivity date thereof was
never presented for the NLRC and for us to determine the dates of
their applicability. Thus, complainant's entitlement to these benefits
was not substantially proven. For the same reason, we have no basis
to consider the same. Except for the bare allegation that he should
have been paid these benefits, no proof of such grant was presented
by complainant.
Corollary, we can only recognize the legally mandated benefits
that need not be established by substantial evidence, i.e., the 13th
month
pay and service incentive leave.14
On June 29, 2010, the NLRC issued its resolution remanding the
case to the Labor Arbiter for the recomputation of the backwages
inclusive of the benefits granted under the CBA,15 disposing:
WHEREFORE, the decision dated 10 January 2010 is MODIFIED.
The case is remanded to the Arbitration Branch of origin only for the
purpose of recomputation of complainant's full backwages using the
Collective Bargaining Agreement for the covered period as basis of
computation. Respondent [UCCI] is directed to furnish the office of
the Labor Arbiter's copies of the Collective Bargaining Agreement
pertinent thereto.
The other findings are AFFIRMED.
SO ORDERED.16
The NLRC observed that there was a need to include the benefits
granted under the CBA; that in the personnel action form submitted
by UCCI, the reinstatement salary of the respondent amounted to
₱26,614.00 as opposed to the Pl 1,194.00 alleged salary at the time
of his dismissal; and the disparity should have prompted the Labor
Arbiter to probe into his claim of entitlement to the benefits under the
CBA as part of his backwages.17
Judgment of the CA
Not satisfied, UCCI assailed the resolution issued on June 29, 2010
by the NLRC on certiorari.
On August 23, 2011, the CA upheld the NLRC, agreeing with the
latter's observation that UCCI had failed to submit the documents
providing the details of the benefits granted to its employees from the
time when the respondent was illegally terminated until his
reinstatement on July 1, 2008. It cited Fulache v. ABS-CBN
Broadcasting Corporation18in holding that illegally dismissed
employees were also entitled to the CBA benefits.19
Upon denial of its motion for reconsideration,20 UCCI now appeals by
petition for review on certiorari.
We note that during the pendency of the appeal, Isaias A. Valmores,
Sr. and Leonarda B. Valmores, the parents of the respondent,
prayed for their substitution herein in view of the respondent's
intervening demise.21
Issues
UCCI submits that:
THE COMPUTATION FOR THE PAYMENT OF BACKWAGES
SHOULD CONFORM TO ESTABLISHED JURISPRUDENCE
WHICH PROVIDES THAT THE BASE FIGURE TO BE USED IN
THE COMPUTATION OF BACKWAGES IS PEGGED AT THE
WAGE RATE AT THE TIME OF THE EMPLOYEE'S DISMISSAL
UNQUALIFIED BY DEDUCTIONS, INCREASES AND/OR
MODIFICATIONS GRANTED IN THE INTERIM22
Citing BPI Employees' Union-Metro Manila v. Bank of the Philippine
Islands,23 UCCI posits that in determining the respondent's
backwages the prospective increases in wages as well as the
benefits provided in the CBA should be excluded; that, as a
consequence, the base figure for computing the respondent's
backwages should be his basic salary prevailing at the time of his
dismissal, unqualified by deductions or increases; that the ruling of
the CA and the NLRC to include the CEA-granted benefits was
without legal basis and was contrary to prevailing jurisprudence; and
that at any rate the respondent did not establish that he was enjoying
such CBA benefits at the time of his dismissal.
In contrast, the respondent, now represented by his parents,
manifests that he would not oppose the computation of the
backwages in accordance with the BPI Employees' Union-Metro
Manila ruling, provided that: (1) the 12% interest per annum imposed
from the time when the decision became final until full payment
based on BPI Employees' Union-Metro Manila should be applied
herein; and (2) that all CBA benefits being received by the
respondent at the time of his dismissal should be added to his basic
salary. He maintains that UCCI should alone be held liable for the
payment of backwages instead of being held jointly liable with UELO.
In riposte, UCCI argues that it could not be solely held liable for the
payment of backwages because of the express ruling of the NLRC
on November 29, 2000 (as upheld by the CA and affirmed by this
Court) declaring it and UELO liable for illegal dismissal; and that the
respondent cannot belatedly raise the matter during the period of
execution inasmuch as the matter should have been properly raised
while the NLRC's decision was still on appeal.
In fine, the Court shall now determine the following, namely: (1) the
correct basis for computing the backwages of the respondent; (2) the
nature of UCCI's liability for payment of full backwages; and (3) the
proper interest rate to be imposed on the judgment award.
Ruling of the Court
We deny the petition for review on certiorari.
I
Backwages include all benefits previously
enjoyed by the illegally dismissed employee
The extent of the backwages to be awarded to an illegally dismissed
employee has been set in Article 27924 of the Labor Code, viz.:
Article 279. Security of Tenure. - In cases of regular employment, the
employer shall not terminate the services of an employee except for
a just cause or when authorized by this Title. An employee who is
unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.
The settled rule is that full backwages shall be pegged at the wage
rate at the time of the employee's dismissal, unqualified by any
deductions and increases, thus:
[T]he determination of the salary base for the computation of
backwages requires simply an application of judicial precedents
defining the term "backwages." An unqualified award of backwages
means that the employee is paid at the wage rate at the time of his
dismissal. Furthermore, the award of salary differentials is not
allowed, the established rule being that upon reinstatement, illegally
dismissed employees are to be paid their backwages without
deduction and qualification as to any wage increases or other
benefits that may have been received by their co-workers who were
not dismissed or did not go on strike.25
The base figure for the computation of backwages should include not
only the basic salary but also the regular allowances being received,
such as the emergency living allowances and the 13th month pay
mandated by the law.26 The purpose for this is to compensate the
worker for what he has lost because of his dismissal, and to set the
price or penalty on the employer for illegally dismissing his
employee.27
Conformably with the foregoing guidelines, the Labor Arbiter did not
err in using ₱11,194.00 as the base figure because the sum
represented the respondent's wage rate at the time of his dismissal
on February 22, 1996. Also, the Labor Arbiter properly included in
the computation the respondent's 13th month pay and service
incentive leave.
The respondent insisted before the Labor Arbiter that his CBA-
granted benefits should be included, but UCCI opposed, citing the
2011 ruling in BPI Employees' Union-Metro Manila v. Bank of the
Philippine Islands. It contended that any computation that reflected
increases during the period of his dismissal would be incorrect for
want of legal basis and for being contrary to prevailing jurisprudence.
We agree with UCCI.
The base figure to be used in reckoning full backwages is the salary
rate of the employee at the time of his dismissal. The amount does
not include the increases or benefits granted during the period of his
dismissal because time stood still for him at the precise moment of
his termination, and move forward only upon his reinstatement.
Hence, the respondent should only receive backwages that included
the amounts being received by him at the time of his illegal dismissal
but not the benefits granted to his co-employees after his dismissal.
The Court is also aware of the reality that salary increases and
benefits are not automatically given to the worker, but are given
subject to conditions. As such, the respondent's claim for the
increases in salary, meal subsidy, safety incentive pay, SOFA,
financial grant and medical assistance for the period from 1997 until
2007, and one-time CBA increase, should be excluded from his
backwages.
CBA allowances and benefits that the respondent was regularly
receiving before his illegal dismissal on February 22, 1996 should be
added to the base figure of ₱11, 194.00. This is because Article 279
of the Labor Code decrees that the backwages shall be "inclusive of
allowances, and to his other benefits or their monetary
equivalent." Considering that the law does not distinguish between
the benefits granted by the employer and those granted under the
CBA, he should not be denied the latter benefits.
Nonetheless, the respondent still had to prove his entitlement to the
benefits by submitting proof of his having received the same at the
time of his illegal dismissal. In BPI Employees' Union-Metro
Manila, the claim for CBA benefits such as the signing bonus,
medical and doctor's allowance, and dental allowance was denied
because the employee was unable to prove that he was receiving
such benefits at the time of the illegal dismissal. To do so, therefore,
the respondent must have submitted before the Labor Arbiter
sufficient evidence establishing his receiving meal subsidy, SOFA,
financial grant, medical assistance, built-in overtime and night shift
differential, rice subsidy, uniform allowance, Christmas package,
vacation and sick leave at the time he was dismissed. Yet, the
respondent was unable to discharge his burden because the relevant
documents, including the CBA, had been in UCCI's exclusive
possession and custody. Unfortunately, the Labor Arbiter did not rule
on his motion to compel the production of the documents by
subpoena duces tecum because, as the NLRC put it:28
The Labor Arbiter did not recognize the CBA benefits which
complainant alleged should have been included in the computation
because the complainant failed to prove the same. On 2 June 2008,
the complainant filed a motion xxxx for computation of backwages
and issuance of subpoena to the personnel manager/payroll officer
or any employee of respondent employer-company to bring
documents as well as the Collective Bargaining Agreement in force
related to the latest salary/benefits of a Senior Utilities Operator and
to testify thereon. This motion was not resolved by the Labor Arbiter.
xxxx On 1 July 2008, respondent [UCCI] in its personnel action form
xxx admitted complainant's re-instatement salary to be ₱26,614.00
per month. The difference or disparity between the amount of
₱l1,194.00 allegedly complainant's salary at the time of his dismissal
on 26 February 2006 and ₱26,614.00 salary of complainant for the
month of July 2008 should have prompted the Labor Arbiter to dig
deeper into the allegations of complainant that he is entitled to other
benefits under the CBA, the same to form part of the full backwages
awarded to him.
The observations of the CA on this are adopted with approval, to wit:
In the case at bench, it is undisputed that private respondent was a
regular employee of petitioner UCCI and a member of
UELO.1âwphi1 A perusal of the records also shows that his
expulsion from the union was deemed unjustified. This was the
finding of the Former Sixth Division of this Court in its Decision dated
January 18, 2002. Had private respondent not been unlawfully
ousted from the union and unjustly terminated from work, he would
have been entitled to the benefits being regularly received by the
employees of petitioner UCCI who are members of the bargaining
unit. As aptly noted by the NLRC, petitioner UCCI failed to submit the
documents providing the details of benefits granted to its employees
from the time of private respondent's dismissal on February 22, 1996
up to the date of his reinstatement. The presumption that evidence
willfully suppressed would be adverse if produced thus applies.
Consequently, We sustain the NLRC's ruling that private
respondent's full backwages should be re-computed in order to
include the benefits regularly given to petitioner UCCI's employees
under the CBA.29
We consider as patent error on the part of the Labor Arbiter to
declare that the respondent had not proved his entitlement to the
CBA benefits. Accordingly, the remand to enable the proper
determination of the CBA benefits that the respondent had been
receiving as of February 22, 2006 is proper and necessary.
II
UCCI is solely liable for
the payment of backwages
The respondent submits that UCCI, as the employer, was solely
liable for the payment of backwages. UCCI counters that the NLRC's
decision promulgated on November 29, 2000, which the Court
already affirmed, declared both UCCI and the UELO as liable for the
backwages to the respondent; and insists that because the NLRC's
decision had already become final and executory, no modifications
thereof can be allowed without violating the rule on immutability of a
final decision.
UCCI is mistaken.
The November 29, 2000 decision of the NLRC faulted the UCCI for
dismissing the respondent without cause and for non-observance of
procedural due process. The body of the decision explained how the
UELO had wrongly expelled him from its membership, but such
explanation was made only to highlight how the UCCI had not
conducted its own investigation of the circumstances behind his
expulsion in order to determine for itself whether or not the union
security clause was applicable. Although the NLRC did not include in
the body of its decision anything to the effect that UELO should be
liable for the respondent's expulsion, it nonetheless decreed:
WHEREFORE, premises considered, the appeal is GRANTED. The
Decision appealed from is SET ASIDE and a new one entered
finding respondents liable for illegal dismissal and ordering them to
reinstate complainant to his former position without loss of seniority
rights and with full backwages from the date of dismissal on 22
February 1996 to the date of actual reinstatement.
SO ORDERED.30
There is thus a conflict between the body of the decision and the
dispositive portion or the fallo. As a rule, the fallo controls in such a
situation on the theory that the fallo is the final order, while the
opinion stated in the body is a mere statement ordering
nothing.31 However, where the inevitable conclusion from the body of
the decision is so clear as to show that there was a mistake in the
dispositive portion, the body of the decision should prevail.32Indeed,
the rationality of the decision should justify the fallo. To say otherwise
is to tolerate a farce. We have no doubt at all that the exception fully
applies herein.
Verily, the petitioner, as the employer effecting the unlawful
dismissal, was solely liable for the backwages of the respondent, its
employee. In General Milling Corporation v. Casio,33 we explained
the liability of the employer in case of the unlawful termination
pursuant to the union security provision of the CBA, viz.:
x x x x Despite a closed shop provision in the CBA and the expulsion
of Casio, et al. from IBP-Local 31, law and jurisprudence imposes
upon GMC the obligation to accord Casio, et al. substantive and
procedural due process before complying with the demand of IBP-
Local 31 to dismiss the expelled union members from service. The
failure of GMC to carry out this obligation makes it liable for illegal
dismissal of Casio, et al.
In Malayang Samahan ng mga Manggagawa sa M. Greenfield, the
Court held that notwithstanding the fact that the dismissal was at the
instance of the federation and that the federation undertook to hold
the company free from any liability resulting from the dismissal of
several employees, the company may still be held liable if it was
remiss in its duty to accord the would-be dismissed employees their
right to be heard on the matter.
III
The interest rate to be imposed on
the judgment award
The position of the respondent that the interest rate to be imposed
on the monetary award should be fixed at l 2% per annum reckoned
from the finality of the decision of the NLRC until full payment is
warranted and upheld. Pursuant to Article 2209 of the Civil
Code,34 interest at the legal rate should be imposed on the monetary
awards in favor of the respondent because UCCI incurred a delay in
discharging its legal obligations to pay him full backwages. In BPI
Employees Union-Metro Manila,35 the Court, conformably
with Eastern Shipping Lines, Inc. v. Court of Appeals,36 imposed
interest of 12% per annum on the monetary award in favor of the
employee from the finality of the decision until full satisfaction "for the
delay caused." Considering that the decision of the NLRC in favor of
the respondent became final and executory on November 17,
2003, Eastern Shipping Lines, Inc. was the prevailing rule on the
legal rate of interest.
WHEREFORE, the Court GRANTS the Motion for Substitution filed
by the Heirs of Victoriano B. Valmores, and,
accordingly, AUTHORIZES the substitution of the respondent by his
parents Spouses Isaias A. Valmores, Sr. and Leonarda B.
Valmores; DENIES the petition for review on certiorari for its lack of
merit; and AFFIRMS the decision promulgated on August 23, 2011
by the Court of Appeals, subject to the
following MODIFICATIONS, namely:
(a) REMANDING the case to the Labor Arbiter for the recomputation
of respondent Victoriano B. Valmores' full backwages using the base
figure of ₱l1,194.00 plus the other benefits and allowances granted
under the Collective Bargaining Agreement being regularly received
by him as of February 22, 1996, and
(b) DECLARING petitioner United Coconut Chemicals, Inc. solely
liable to pay the respondent's full backwages plus legal interest of
12% per annum of the total monetary awards computed from finality
of the illegal dismissal case on November 17, 2003 until their full
satisfaction.
Costs of suit to be paid by the petitioner.
SO ORDERED.
G.R. No. 188057
HILLTOP MARKET FISH VENDORS' ASSOCIATION,
INC., Petitioner
vs.
HON. BRAULIO YARANON, City Mayor, Baguio City, HON. GALO
WEYGAN, City Councilor and Chairman Anti-Vice Coordinating Task
Force, and the CITY GOVERNMENT OF BAGUIO, Respondents
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the Decision2 dated 27 November
2008 and the Resolution3 dated 15 May 2009 of the Court of Appeals
(CA) affirming the Decision4 dated 28 September 2006 of the
Regional Trial Court of Baguio City, Branch 3 (RTC) in Civil Case No.
5994-R.
The Facts
The facts, as culled from the records, are as follows:
On 22 June 1974, petitioner Hilltop Market Fish Vendors'
Association, Inc. (Hilltop), represented by its president Gerardo
Rillera (Rillera), and respondent City of Baguio, represented by its
then Mayor Luis Lardizabal, entered into a Contract of Lease5 over a
lot owned by the City of Baguio, with an area of 568.80 square
meters and located at the Hilltop Market, Baguio City.
The contract provided that the period of lease is 25 years, renewable
for the same period at the option of both parties, and the annual
lease rental is ₱25,000, with the first payment commencing upon the
issuance by the City Engineer's Office of the Certificate of full
occupancy (Certificate) of the building to be constructed by Hilltop on
the lot. Before the Certificate is issued, the City of Baguio can
continue collecting market fees from the vendors who are allowed to
occupy any portion of the building. At the termination of the lease
period, the City of Baguio will own the building without payment or
reimbursement for Hilltop's costs.
Sometime in 1975, Hilltop constructed the building, thereafter known
as the Rillera building, on the lot. Even though the City Engineer's
Office did not issue a Certificate, Hilltop's members occupied the
Rillera building and conducted business in it.
On 16 October 1980, the City Council of Baguio, through its then
Mayor Ernesto Bueno, issued Resolution No. 74-806 rescinding the
contract of lease with Hilltop, for its continued failure to comply with
its obligation to complete the Rillera building. In Resolution Nos. 18-
817 and 50-86,8 the City Council of Baguio reiterated its resolution to
rescind the contract and sought to undertake the completion of the
building.
On 20 February 1990, then Mayor Jaime Bugnosen ordered the
closure of the two upper floors of the Rillera building based on the
City Council's Resolution No. 24, s. of 1990, that the Rillera building
failed to comply with the minimum sanitary standards under
Presidential Decree No. 856.9
In a Letter to the Building Official, City Administrator Leonardo dela
Cruz stated that "Rillera and his officers would like to discuss x x x
the possibility of completing the necessary requirements for the x x x
permit to occupy the Rillera building."10
Subsequently, the City Engineer's Office issued its finding that the
two upper floors of the Rillera building were unsafe for
occupancy.11 Thereafter, it recommended to condemn the
building.12 Sometime in 2003, then Mayor Bernardo Vergara issued a
notice to take over the Rillera building.13
On 28 February 2005, respondent then Mayor Braulio Yaranon
(Yaranon) issued Administrative Order No. 030 S. 2005 (AO No. 30),
ordering the City Building and Architects Office (CBAO) and Public
Order and Safety Division to immediately close the Rillera building to
have it cleaned, sanitized and enclosed; to prevent illegal activities in
it; and for its completion and preparation for commercial use.14
On 7 March 2005, Hilltop filed with the RTC a Complaint with Very
Urgent Application for Temporary Restraining Order and Writ of
Preliminary Injunction15 praying that the court issue an injunction
against the implementation of AO No. 30 and order the concerned
office to issue the Certificate to make the contract of lease effective.
In their Answer dated 13 April 2005,16 Yaranon and respondent Galo
Weygan alleged that the Certificate was not issued to Hilltop
because the Rillera building was not completed, and there were no
provisions for electrical and plumbing systems or facilities for conduct
of regular business.1âwphi1 In any case, they argued that the
issuance of the Certificate shall only signal the start of payment of
annual lease rental and not the effectivity of the contract. They
further alleged that even without the Certificate, Hilltop's members
occupied the building and conducted business in it; hence, Hilltop
already waived the condition.
The Ruling of the RTC
After trial, the RTC ruled in favor of the City of Baguio and dismissed
the complaint. The dispositive portion of the Decision states:
WHEREFORE, the instant complaint is hereby DISMISSED.
The defendant, Baguio City Council Resolution giving rise to
Administrative Order No. 030 s. 2005 is hereby found to be valid, and
according to law.
IT IS SO ORDERED.17
The RTC found that the contract of lease automatically expired on 22
June 1999, because the lease period of 25 years was expressly
provided in the contract of lease dated 22 June 197 4. The RTC did
not give weight to Hilltop's contention that the Certificate authorized it
to occupy the lot because even without the Certificate, Hilltop already
occupied the lot as early as 22 June 1974 up to the present, which is
beyond the 25-year period provided in the contract of lease. The
RTC further found the Rillera building unsanitary and dangerous to
those occupying it.
The Rulin2 of the CA
The CA affirmed the decision of the RTC and ruled that there was
already a perfected contract of lease: the issuance of the Certificate
was imposed only on the performance of the obligations contained in
it. The CA held that Hilltop is estopped from claiming that the period
of lease has not began, since it already occupied the Rillera building
and conducted business in it even without the Certificate.
In a Resolution dated 15 May 2009, the CA denied the motion for
reconsideration.
Hence, this petition.
The Issues
Hilltop raises the following issues for resolution:
THE COURT OF APPEALS ERRED IN FINDING THAT THE
CONTRACT OF LEASE ENTERED INTO BY THE PARTIES WAS
ALREADY PERFECTED CONTRARY TO EVIDENCE AND TO
LAW.
THE COURT OF APPEALS ERRED IN RULING THAT THE
PETITIONER IS ESTOPPED FROM CLAIMING THAT THE PERIOD
OF LEASE HAS NOT YET BEGAN CONTRARY TO EVIDENCE
AND TO LAW.
THE COURT OF APPEALS ERRED IN FINDING THAT
RESPONDENTS PROPERLY WITHHELD THE ISSUANCE OF THE
OCCUPATION PERMIT TO PETITIONER.
THE COURT OF APPEALS ERRED IN NOT RULING ON AND
AWARDING THE DAMAGES PRAYED FOR BY PETITIONER
CONTRARY TO EVIDENCE AND TO LAW.18
The Ruling of the Court
We deny the petition.
In a contract of lease, one of the parties binds himself to give to
another the enjoyment or use of a thing for a price certain, and for a
period which may be definite or indefinite.19 Being a consensual
contract, a lease is perfected at the moment there is a meeting of the
minds upon the thing and the cause or consideration which are to
constitute the contract.20 Thereafter, the lessor is obliged to deliver
the thing which is the object of the contract in such a condition as to
render it fit for the use intended, and the lessee is obliged to use the
thing leased as a diligent father of a family, devoting it to the use
stipulated or that which may be inferred from the nature of the thing
leased.21
The relevant provisions of the contract of lease between Hilltop and
the City of Baguio are:
That the LESSOR leases unto the LESSEE, and the latter hereby
accepts in lease from the former, that area of 568.80 square meters,
as shown in the location plan prepared by the City Engineer's Office,
the san1e being originally occupied by the fish vendors and where
the construction of the proposed Fish Market Building is now .being
done, located at the Hilltop Market, Baguio City under the following
terms and conditions, to wit:
1. That the above-referred to location plan prepared by the City
Engineer's Office be made an integral part of this contract in order to
properly delimit the area under lease;
2. That the period of the lease will be twenty-five (25) years
renewable for the same period at the option of both parties, that is
the City of Baguio which will be represented by the City Mayor and
the Hilltop and Fish Vendors' Association, Inc.;
3. That the annual lease rental shall be ₱25,000.00 payable within
the first 30 days of each and every year; the first payment to
commence immediately upon issuance by the City Engineer's Office
of the Certificate of full occupancy of the entire building to be
constructed thereon, provided further, that before the certification of
full occupancy of the entire building is issued by the City Engineer's
Office, the City shall continue collecting market fees due from the
vendors who would be allowed to occupy whether permanently or
temporarily any portion/floor of said building, and said collection to
belong to the City of Baguio;
4. That the annual lease rental of ₱25,000.00 stipulated in paragraph
(3) hereof, shall be for fifteen (15) years from date of effectivity of the
contract and for the remaining ten (10) years thereafter, the parties
herein shall determine another rate of rental that may be deemed
equitable by the LESSOR taking into consideration the increase of
commercial value of the premises, the aggregate improvements
made and all the unearned increments that have accrued with the
time, place and other circumstances affecting the value of the
premises which is the subject matter of this contract;
5. That the building to be constructed by the Hilltop Market Vendors'
Association, Inc., on the lot, subject of the lease, shall subsequently
be owned by the City of Baguio at the termination of. the lease
period hereinbefore mentioned without payment or reimbursement
for its costs;
xxxx
10. That the Hilltop Market and Fish Vendors' Association, Inc., shall
maintain the cleanliness and sanitation of the building and its
premises at its expense in accordance with existing ordinances and
future ordinances and existing rules and regulations on cleanliness
and sanitation;22
xxxx
In a contract of lease, the cause or essential purpose is the use and
enjoyment of the thing.23 The thing or subject matter of the contract
in this case was clearly identified and agreed upon as the lot where
the building would be constructed by Hilltop. The consideration were
the annual lease rental and the ownership of the building upon the
termination of the lease period. Considering that Hilltop and the City
of Baguio agreed upon the essential elements of the contract, the
contract of lease had been perfected.
From the moment that the contract is perfected, the parties are
bound to fulfill what they have expressly stipulated.24Thus, the City of
Baguio gave the use and enjoyment of its lot to Hilltop. Both the RTC
and the CA found that upon the execution of the contract on 22 June
1974, Hilltop took possession of the lot and constructed the Rillera
building on it. Thereafter, Hilltop's members occupied the Rillera
building and conducted business in it up to the present. The findings
of fact of the RTC and the CA are final and conclusive and cannot be
reviewed on appeal by this Court.25
Since Hilltop exercised its right as lessee based on the contract of
lease and the law, it has no basis in claiming that the contract of
lease did not commence.
Contrary to Hilltop's contention, the issuance of the Certificate was
not a suspensive condition which determines the perfection of the
contract or its effectivity. The contract of lease specifically provides
that: "x x x the annual lease rental shall be ₱25,000 payable within
the first 30 days of each and every year; the first payment to
commence immediately upon issuance by the City Engineer's Office
of the Certificate of full occupancy of the entire building to be
constructed thereon x x x."26 Clearly, the issuance of the Certificate
is only a condition that will make Hilltop start paying the annual lease
rental to the City of Baguio. Because the Certificate was not issued,
the payment of annual lease rental did not commence. A contract
constitutes the law between the parties and they are, therefore,
bound by its stipulations.27 If the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations shall control.28
Hilltop failed to distinguish between a condition imposed upon the
perfection of the contract and a condition imposed on the
performance of an obligation. Failure to comply with the first
condition results in the failure of a contract, while the failure to
comply with the second condition only gives the other party the
option either to refuse to proceed or to waive the condition.29 In this
case, the condition, which is the issuance of the Certificate, was
imposed only for the obligation to pay the rent to commence.
Payment of the price, or the rent, in this case, goes into the
performance of the contract and has nothing to do with the perfection
of the contract.30
As further found by the CA:
x x x. Considering however that plaintiff-appellant has occupied the
building and conducted therein business without the certificate, it is
now estopped to claim that the period of lease has not yet began.
It would be incredible for plaintiff-appellant to assert that the
certificate was a condition prior to its occupancy. Plaintiff-appellant
raised no protest when it occupied [the] Rillera [b]uilding.
Furthermore, it took no direct action to promptly disavow or disaffirm
the alleged condition in the lease contract. As a matter of fact, it was
only .in 1999, when the term of the contract had expired, that
plaintiff-appellant became persistent in trying to obtain the certificate
from defendants-appellees.
By its continued silence, it has agreed that the issuance of the said
certificate was not a condition to the perfection of the lease contract.
The rule of acquiescence by silence has estopped plaintiff-appellant
to deny the reality of the state of things which it made to appear to
exist and upon which others have been led to rely. Parties must take
the consequences of the position they assume.31
Hilltop is also estopped from claiming that the contract of lease did
not commence since it based its occupancy of the Rillera building on
the contract of lease. In its petition, Hilltop alleged that "an
examination of the provisions of the contract of lease would show
that the terms and conditions for the possession and occupation of
the building before the issuance of the occupancy permit by
respondents has, likewise, been contemplated by the parties."32
On Hilltop's allegation that it completed the building as early as 1975,
the records show that the City Council of Baguio issued Resolutions
demanding for the rescission of the contract of lease for failure of
Hilltop to complete the construction of the Rillera building. In reply,
the Letter to the Building Official stated that "Rillera and his officers
would like to discuss x x x the possibility of completing the necessary
requirements for the x x x permit to occupy the Rillera
building."33 Hilltop did not deny the authenticity of these documents.
Hilltop also admitted in the Letter that it has not completed the
requirements for the Certificate. Furthermore, the RTC found that:
Moreover, uncontroverted findings were made by the Baguio Health
Department and the City Engineer's Office, to the effect that the
situation in the Rillera [b ]uilding is unsanitary, and considering the
structures were damaged by the July 16, 1990 killer earthquake, it
has made the said building dangerous for those occupying it. The
Anti-Vice Committee of the Department of Local Government made
also the findings that inside the building were illegal activities like
gambling and drinking.34
Undeniably, Hilltop failed to comply with its obligations under the
contract of lease. It failed to complete the requirements for the
issuance of the Certificate and maintain the sanitation of the Rillera
building. The City Engineer's Office did not issue the Certificate
because of the fault of Hilltop. The party at fault, Hilltop, cannot use
the non-issuance of the Certificate to its advantage because the non-
issuance was due to its fault. In short, Hilltop cannot claim that the
25-year lease period has not yet commenced because of the non-
issuance of the Certificate, since Hilltop itself was responsible for the
non-issuance of the Certificate.
Parties who do not come to court with clean hands cannot be
allowed to profit from their own wrongdoing.35 The action (or inaction)
of the party seeking equity must be "free from fault, and he must
have done nothing to lull his adversary into repose, thereby
obstructing and preventing vigilance on the part of the latter." 36
Since the contract of lease already commenced, Hilltop has been
occupying the Rillera building even after the termination of the lease
period. The contract of lease provides that the period of lease is 25
years and it is renewable for the same period at the option of both
parties. Based on the findings of the RTC that Hilltop started
occupying the lot in 1974 and 25 years have lapsed without the
parties renewing the contract, the contract of lease is already
terminated. Thus, the City of Baguio is justified in issuing AO No. 30,
and in taking over the Rillera building being its owner under the
contract of lease. There is no basis in granting damages to Hilltop.
In a reciprocal contract like a lease, the period must be deemed to
have been agreed upon for the benefit of both parties, absent
language showing that the term was deliberately set for the benefit of
the lessee or lessor alone.37The continuance, effectivity, and
fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the
lessee.38 Mutuality does not obtain in such a contract of lease and no
equality exists between the lessor and the lessee since the life of the
contract would be dictated solely by the lessee. 39
WHEREFORE, we DENY the petition. We AFFIRM the Decision
dated 27 November 2008 and the Resolution dated 15 May 2009 of
the Court of Appeals in CA-G.R. CV No. 88472.
SO ORDERED.
G.R. No. 227894
JOSE S. OCAMPO, Petitioner
vs.
RICARDO1 S. OCAMPO, SR., Respondent
DECISION
VELASCO, JR., J.:
The Case
Pending before the Court is a Petition for Review on Certiorari filed
under Rule 45 of the Rules of Court, seeking to reverse and set
aside the Decision2 dated June 28, 2016 and the Resolution3 dated
October 20, 2016 of the Court of Appeals (CA) in CA-G.R. CV No.
99908. The CA affirmed the Decision4 dated September 30, 2011 of
the Regional Trial Court (RTC) of Manila, Branch 55, in Civil Case
No. 92-61716, which ordered the partition of the subject property and
the annulment and cancellation of petitioner's title over the same.
The Facts
Petitioner Jose S. Ocampo and respondent Ricardo S. Ocampo are
full-blooded brothers being sons of the late Basilio Ocampo and
Juliana Sunglao.5
The present case arose from a complaint filed by respondent against
petitioner for partition and annulment of Transfer Certificate of Title
(TCT) No. 102822 ("Subject Property").6
In the complaint, respondent alleged that he and petitioner are co-
owners of the Subject Property, which was a conjugal property left by
their parents, consisting of a 150-square meter lot and the
improvements thereon located at 2227 Romblon Street, G. Tuazon,
Sampaloc, Manila. The Subject Property was originally registered in
their parents' names under TCT No. 36869.7
Respondent claimed that petitioner and his wife, Andrea Mejia
Ocampo, conspired in falsifying his signature on a notarized Extra-
Judicial Settlement with Waiver ("ESW") dated September 1970, and
effecting the transfer of the property in the name of petitioner under
TCT No. 102822, which was issued on November 24, 1970. Based
on a finding by the National Bureau of Investigation (NBI) that
respondent's signature was forged, an Information was filed against
petitioner, the notary public, and two others. Respondent requested
for partition of the property, but petitioner refused to do so and
secretly mortgaged the property for ₱200,000.00.8
Petitioner and his wife moved for the dismissal of the complaint, but it
was denied by the trial court. Thereafter, they filed their Answer with
Motion for Preliminary Hearing on the Affirmative Defense of
prescription.9
Based on their Answer, petitioner and his wife claimed that their
parents executed a Deed of Donation Propter Nuptias of the Subject
Property in their favor as they were getting married, with a promise
on their part to demolish the old house and replace it with a new two-
storey house, which they did. To build the new house, they obtained
a ₱l0,000.00 loan from the Development Bank of the Philippines
(DBP), with petitioner and his parents as borrowers.10
Petitioner further alleged that his parents gave respondent several
properties outside Metro Manila, which respondent eventually lost.
Petitioner and his wife then allowed respondent to stay at the second
floor of the house. Petitioner was able to pay the DBP loan through a
loan secured from the Social Security System (SSS) with the consent
of his father. He claimed that on September 30, 1970, their father
executed the ESW and secured respondent's signature. By virtue of
the ESW, petitioner was able to have TCT No. 36869 cancelled and
have TCT No. 102822 issued in favor of himself and his wife.11
Finally, petitioner argued that TCT No. 102822 became indefeasible
one year after its issuance on November 24, 1971, and that the
action to annul TCT No. 102822 had prescribed since it was filed
only on June 29, 1992, or 21 years and 7 months from the issuance
of the title. He further claimed that the action to annul the ES W is a
collateral attack on the title, and the rule on non-prescription against
a co-owner does not apply since he and his wife had become
exclusive owners of the Subject Property.12
In an Order dated January 21, 1994, the trial court dismissed the
complaint on the ground of prescription. Respondent filed a Motion
for Reconsideration and other supplemental pleadings, but they were
denied by the trial court. Respondent thus elevated the matter to the
CA, which declared the RTC's January 21, 1994 Order null and void.
Petitioner filed a motion for extension of time to file a petition for
review on certiorari before this Court, but the same was denied in a
minute resolution.13
Thereafter, respondent filed a motion for writ of execution before the
RTC. However, the motion was denied on the ground that there is
nothing to execute since the setting aside of the R TC Order dated
January 21, 1994 calls for the case to be tried on the merits. Thus,
the RTC set the case for pre-trial.14
Meanwhile, petitioner filed a Motion for Leave to File Amended
Answer which was granted by the RTC. In the Amended Answer,
petitioner alleged that after their mother passed away in 1965, the
₱3,000.00 balance of the DBP loan was paid through an SSS loan.
Petitioner alleged that in consideration of the loan, respondent and
their father waived their rights to the property under the ESW.
Petitioner further claimed that on November 19, 1970, their father
executed a Deed of Absolute Sale, where he sold his interest in the
Subject Property for ₱9,000.00 in favor of petitioner.15
Pre-trial ensued and the case was twice referred to mediation, but
the parties refused to mediate. Thus, trial proceeded.16
Respondent presented three witnesses, as follows: 1) himself, 2) his
wife, Francisca Elera Ocampo, and 3) Rhoda B. Flores, the Officer-
inCharge of the Questioned Documents Division of the NBI.17 On the
other hand, petitioner presented himself as the only witness for the
defense.18
Ruling of the Regional Trial Court
In a Decision dated September 30, 2011, the RTC ruled in favor of
respondent, to wit:
WHEREFORE, premises considered, judgment is hereby rendered
IN FAVOR OF THE PLAINTIFF, RICARDO S. OCAMPO and
AGAINST the defendant JOSE S. OCAMPO, as follows:
1. ORDERING the property located at 2227 Romblon St. G. Tuazon,
Sampaloc, Manila, including the improvements found therein to be
partitioned between the plaintiff and the defendant, each having a
share of one-half in the property;
2. ORDERING that TCT No. 102822 of the Registry of Deeds of the
City of Manila be ANNULLED;
3. ORDERING the Registry of Deeds of the City of Manila to
CANCEL Transfer Certificate of Title No. 102822, issued in the name
of defendant, the same being null and void;
4. ORDERING the defendant to pay the costs of the suit.
SO ORDERED.19
Petitioner's motion for reconsideration was denied in an Order dated
May 21, 2012. Thus, he filed a Notice of Appeal, which was granted
in the Order dated July 10, 2012.20
Ruling of the Court of Appeals
In the assailed Decision dated June 20, 2016, the CA affirmed the
findings of the RTC, the dispositive portion of which reads:
WHEREFORE, the appeal is DENIED. The September 30, 2011
Decision of the Regional Trial Court, Branch 55, Manila in Civil Case
No. 92-61716 is AFFIRMED.
SO ORDERED.21
In dismissing the petition, the CA found that respondent was able to
prove that his signature on the ESW is not genuine, based on his
and his wife's testimony, as well as the NBI report. According to the
CA, this finding of forgery was also supported by petitioner's own
admission on cross-examination that he was not present when the
ESW was executed. Based on the evidence presented, the
preponderance of evidence weighed in favor of respondent and
against petitioner.
As to petitioner's argument that the action is a collateral and not a
direct attack on the title, the CA found it unmeritorious and ruled that
the action precisely assails the validity of petitioner's title on the
ground that it is based on a forged document, and it is also an action
for reconveyance. Thus, the CA ruled that the action to annul the
ESW is imprescriptible since it is a void or inexistent contract. With
this, the CA affirmed the RTC Decision.
Petitioner filed a Motion for Reconsideration before the CA, but the
same was denied in the assailed Resolution22dated October 20,
2016.
Hence, this petition.
The Petition
Petitioner argues that the CA committed a reversible error in
dismissing the appeal and in affirming the RTC Decision. Petitioner
claims that the ESW, being a notarized document, enjoys a prima
facie presumption of authenticity and due execution. He claims that
there was no clear and convincing evidence to overcome this
presumption.
Even assuming that the ESW is void or inexistent, petitioner argues
that the action filed by respondent is barred by the doctrine of
estoppel by laches. The ESW was executed and notarized on
September 30, 1970. However, it was only on July 1, 1992 that
respondent filed the present case for partition and annulment of title,
claiming that the ESW was forged. Thus, petitioner argues that there
was an unreasonable delay on respondent's part to assert his rights
and pursue his claims against petitioner.
In compliance with the Court's Resolution dated February 1, 2017,
respondent filed his Comment dated April 20, 2017. Respondent
prayed for the dismissal of the petition, arguing that the issues raised
therein have already been exhaustively and judiciously passed upon
by the CA and the trial court. He argues that the CA was correct in
declaring that the action was not barred by laches since the ESW is
a void or inexistent contract which makes an action declaring it
imprescriptible.
The Issue
Petitioner raises the following grounds in support of his petition:
1. The CA erred in finding that the preponderance of evidence lies in
favour of the view that the signature of the respondent is not
genuine.
2. The CA erred in sustaining that the ESW is a void or inexistent
contract.
3. The CA erred in ruling that the action to declare the nullity of the
ESW is not barred by laches.
Essentially, the principal issue in this case is whether or not the CA
committed reversible error in upholding the RTC's findings.
The Court's Ruling
The petition is without merit.
The petition raises questions of fact
It is well settled that questions of fact are not reviewable in petitions
for review on certiorari under Rule 45 of the Rules of Court. Only
questions of law distinctly set forth shall be raised in a petition and
resolved. Moreover, the factual findings of the lower courts, if
supported by substantial evidence, are accorded great respect and
even finality by the courts. Except for a few recognized exceptions,
this Court will not disturb the factual findings of the trial court.23 This
Court sees no reason to overturn the factual findings of the trial
court, as affirmed by the CA, as the records show that preponderant
evidence established the falsity of the ESW and the fraudulent
registration of the subject property in petitioner's name.
Prescription has not set in
We find it proper to delve into the more important issue to be
resolved, that is, whether the action for annulment of title and
partition has already prescribed. It must be pointed out that the issue
of prescription had already been raised by petitioner in his Motion to
Dismiss24 dated August 5, 1992. This motion was granted by the trial
court in its Order25 dated January 21, 1994. However, respondent
appealed this Order with the Court of Appeals in CA-G.R. CV No.
45121. The CA then rendered a Decision26 dated March 30, 2001,
nullifying the order of dismissal of the trial court. The CA essentially
ruled that the case for partition and annulment of title did not
prescribe. The CA Decision was eventually affirmed by the Second
Division of this Court in G.R. No. 149287 by virtue of a minute
Resolution27dated September 5, 2001, which became final and
executory and was entered into the Book of Entries of Judgments on
October 16, 2001.
Accordingly, the resolution in G.R. No. 149287 should have
written finis to the issue of prescription. Nonetheless, to finally put to
rest this bothersome issue, it behooves this Court to further elucidate
why the respondent's action and right of partition is not barred by
prescription. The CA explained that prescription is inapplicable.
While the appellate court's observation is proper, it is inadequate as
it fails to sufficiently explain why the rule on the imprescriptibility and
indefeasibility of Torrens titles do not apply.
In the recent case of Pontigon v. Sanchez, We explained thus:
Under the Torrens System as enshrined in P.D. No. 1529, the decree
of registration and the certificate of title issued become
incontrovertible upon the expiration of one (1) year from the date of
entry of the decree of registration, without prejudice to an action for
damages against the applicant or any person responsible for the
fraud. However, actions for reconveyance based on implied trusts
may be allowed beyond the one-year period. As elucidated in
Walstrom v. Mapa, Jr.:
[N]otwithstanding the irrevocability of the Torrens title already issued
in the name of another person, he can still be compelled under the
law to reconvey the subject property to the rightful owner. The
property registered is deemed to be held in trust for the real owner by
the person in whose name it is registered. After all, the Torrens
system was not designed to shield and protect one who had
committed fraud or misrepresentation and thus holds title in bad faith.
In an action for reconveyance, the decree of registration is respected
as incontrovertible. What is sought instead is the transfer of the
property, in this case the title thereof, which has been wrongfully or
erroneously registered in another person's name, to its rightful and
legal owner, or to one with a better right. This is what reconveyance
is all about. Yet, the right to seek reconveyance based on an implied
or constructive trust is not absolute nor is it imprescriptible. An action
for reconveyance based on an implied or constructive trust must
perforce prescribe in ten years from the issuance of the Torrens title
over the property. (Emphasis supplied)
Thus, an action for reconveyance of a parcel of land based on
implied or constructive trust prescribes in ten (10) years, the point of
reference being the date of registration of the deed or the date of the
issuance of the certificate of title over the property.
By way of additional exception, the Court, in a catena of cases, has
permitted the filing of an action for reconveyance despite the lapse of
more than ten (10) years from the issuance of title. The common
denominator of these cases is that the plaintiffs therein were in actual
possession of the disputed land, converting the action from
reconveyance of property into one for quieting of title.
lmprescriptibility is accorded to cases for quieting of title since the
plaintiff has the right to wait until his possession is disturbed or his
title is questioned before initiating an action to vindicate his
right.28 (Emphasis supplied; citations omitted)
Given the falsity of the ESW, it becomes apparent that petitioner
obtained the registration through fraud. This wrongful registration
gives occasion to the creation of an implied or constructive trust
under Article 1456 of the New Civil Code.29 An action for
reconveyance based on an implied trust generally prescribes in ten
years. However, if the plaintiff remains in possession of the property,
the prescriptive period to recover title of possession does not run
against him. In such case, his action is deemed in the nature of a
quieting of title, an action that is imprescriptible. 30
In the case before us, the certificate of title over the subject property
was issued on November 24, 1970. Yet, the complaint for partition
and annulment of the title was only filed on July 1, 1992, more than
twenty (20) years since the assailed title was issued. Respondent's
complaint before the RTC would have been barred by prescription.
However, based on respondent's submission before the trial court,
both petitioner and respondent were residing at the subject property
at the time the complaint was filed. The complaint31 states:
1) That Plaintiff is of legal age, married, Filipino and presently
residing at 2227 Romblon St., G. Tuazon, Sampaloc, Manila; while
defendant is likewise of legal age, married, Filipino and residing at
2227 Romblon St., G. Tuazon, Sampaloc, Manila, where he may be
served with summons and other processes of this Honorable Court;32
This was unqualifiedly admitted by petitioner in his Amended Answer
and no denial was interposed therefrom.33Petitioner's failure to refute
respondent's possession of the subject property may be deemed as
a judicial admission. A party may make judicial admissions in (a) the
pleadings, (b) during the trial, either by verbal or written
manifestations or stipulations, or (c) in other stages of the judicial
proceeding.34 A judicial admission conclusively binds the party
making it and he cannot thereafter take a position contradictory to or
inconsistent with his pleadings. Acts or facts admitted do not require
proof and cannot be contradicted, unless it is shown that the
admission was made through palpable mistake or that no such
admission was made.35
Considering that respondent was in actual possession of the
disputed land at the time of the filing of the complaint, the present
case may be treated as an action for quieting of title.
Quieting of title is a common law remedy for the removal of any
cloud, doubt, or uncertainty affecting title to real property.36 In Heirs
of Delfin and Maria Tappa v. Heirs of Jose Bacud,37 this Court
reiterated the requisites for an action for quieting of title:
The action filed by Spouses Tappa was one for quieting oftitle and
recovery of possession. In Baricuatro, Jr. v. Court of Appeals, an
action for quieting of title is essentially a common law remedy
grounded on equity, to wit:
x x x Originating in equity jurisprudence, its purpose is to secure
"…an adjudication that a claim of title to or an interest in property,
adverse to that of the complainant, is invalid, so that the complainant
and those claiming under him may be forever afterward free from any
danger of hostile claim. 11 In an action for quieting of title, the
competent court is tasked to determine the respective rights of the
complainant and other claimants, "…not only to place things in
theirproper place, to make the one who has no rights to said
immovable respect and not disturb the other, but also for the benefit
of both, so that he who has the right would see every cloud of doubt
over the property dissipated, and he could afterwards without
fear introduce the improvements he may desire, to use, and even
to abuse the property as he deems best. x x x." (Emphasis in the
original.)
In our jurisdiction, the remedy is governed by Article 476 and 477 of
the Civil Code, which state:
Art. 476. Whenever there is a cloud on title to real property or any
interest therein, by reason of any instrument, record, claim,
encumbrance or proceeding which is apparently valid or effective but
is in truth and in fact invalid, ineffective, voidable, or unenforceable,
and may be prejudicial to said title, an action may be brought to
remove such cloud or to quiet the title.
An action may also be brought to prevent a cloud from being cast
upon title to real property or any interest therein.1âwphi1
Art. 477. The plaintiff must have legal or equitable title to, or interest
in the real property which is the subject-matter of the action. He need
not be in possession of said property.
From the foregoing provisions, we reiterate the rule that for an action
to quiet title to prosper, two indispensable requisites must concur,
namely: (1) the plaintiff or complainant has a legal or an equitable
title to or interest in the real property subject of the action; and (2) the
deed, claim, encumbrance or proceeding claimed to be casting cloud
on his title must be shown to be in fact invalid or inoperative despite
its prima facie appearance of validity or legal efficacy.
A cloud on a title exists when (1) there is an instrument (deed, or
contract) or record or claim or encumbrance or proceeding; (2) which
is apparently valid or effective; (3) but is, in truth and in fact, invalid,
ineffective, voidable, or unenforceable or extinguished (or
terminated) or barred by extinctive prescription; and (4) and may be Court of Appeals in its Decision dated June 28, 2016 in CA-G.R. CV
prejudicial to the title. No. 99908, is hereby AFFIRMED.

Since it was already established that respondent's signature on the The Regional Trial Court shall proceed with the partition of the
ESW, which was the basis of petitioner's title over the property, was subject lot with dispatch.
forged, then it is only necessary for the cloud on respondent's title to
be removed. Thus, the trial court's order to cancel TCT No. 102822 SO ORDERED.
and uphold the parties' co-ownership was proper.

The present action is not barred by

laches

We also find no merit in petitioner's argument that the case is barred

by laches.

Jurisprudence has defined laches as the failure or neglect, for an

unreasonable and unexplained length of time, to do that which-by the
exercise of due diligence-could or should have been done earlier. It
is the negligence or omission to assert a right within a reasonable
period, warranting the presumption that the party entitled to assert it
has either abandoned or declined to assert it. 38

Based on the facts presented before us, it appears that respondent

did not sleep on his rights, as claimed by petitioner. It is undeniable
that respondent had filed several cases to assert his rights over the
property. Aside from the present complaint, respondent also filed, on
separate occasions, three criminal complaints for: 1) falsification of
public document, 2) estafa through falsification of public documents,
and 3) forgery, all against herein petitioner. To Our mind, the filing of
these cases at different times negates the claim of laches. Time and
again, this Court has ruled that courts, under the principle of equity,
will not be guided or bound strictly by the statute of limitations or the
doctrine of laches when to do so, manifest wrong or injustice would
result.39

IN VIEW OF THE FOREGOING, the petition is DENIED. The

Decision dated September 3 0, 2011 of the Regional Trial Court,
Branch 55, Manila in Civil Case No. 92-61716, as affirmed by the